Month 2 Results of “Phase 1” China Trade Deal – Not Good!

April 6, 2020

China got off to a weak start during the first month of the “Phase 1” trade deal that it signed with Trump in early January.  What is the “Phase 1” trade deal?  In exchange for China’s promise to dramatically increase its purchase of a wide range of American goods, Trump delayed the implementation of the next large round of tariffs on Chinese imports.  The agreement uses China’s purchases in 2017 as a baseline.  Here’s the goals that were established:  Phase 1 China Trade Deal Goals.

In January, China didn’t even come close to matching the 2017 baseline in any of the four categories of products, much less the goals to boost their imports.  In February, instead of increasing their imports to begin to catch up, their imports in three of the four categories fell even further.  (Their imports of manufactured goods increased slightly, but was still well below the 2017 baseline.)  Here’s the February results:  Phase 1 China Trade Deal 2020 YTD.

Of course, China was dealing with the Covid-19 outbreak at this time, so some might say we should cut them some slack.  Yes, they were dealing with that crisis, but only in Hubei province, in which the city of Wuhan is located.  And crisis or no crisis, people still have to eat.  Yet their imports of agriculture products fell in February from the already-low January figure.

Only two months in, it’s becoming clear that the Chinese are ignoring the terms of this trade deal.  They’ve already gotten what they wanted – a halt to the increase in tariffs, they are back in control of the trade  situation, and they can hope once again that America will take its eye off the ball as it has always done with trade deals.

If I were Trump, I’d wait until the March results are posted in early June.  Then I’d give them a stern warning that if they don’t improve their performance within the next three months, the deal will be off and I’d raise the tariffs beyond those that were delayed by the January signing of this ill-conceived deal.  And I would cease any further pointless trade negotiations with China.


“Phase 1” China trade deal off to a really bad start

March 7, 2020

You’d think that if China liked the “Phase 1” trade deal that it signed with the Trump administration in early January, and the hope for tariff relief that it offered in the future, that China would have gone out of its way to demonstrate a good faith effort in its first month.  It did just the opposite.  To say that it didn’t meet its quotas for imports from the U.S. would be an understatement.  I suspected that China never had any intention of complying with this agreement.  They already got what they wanted – a reprieve from any further tariffs and a return to the status quo trade relationship with the U.S. – one in which it protects its massive trade surplus.  So I promised to track China’s progress in complying (or not) with the agreement.  The trade data for the month of January was released yesterday by the Commerce Department.  So here we go.

First of all, a little background is in order.  What did China agree to in this “Phase 1” deal?  They agreed to meet four major milestones in terms of importing U.S. goods and services in the years 2020 and 2021, with the objective of reducing China’s trade surplus with the U.S.  The goals use 2017 as a baseline.  Here are they are:  Phase 1 China Trade Deal Goals.

These goals weren’t broken down into monthly goals, but it was made clear to the Chinese that the U.S. would be tracking progress toward meeting these goals and would quickly call out China if they fail to demonstrate progress.  It would be reasonable to expect that China would gradually ramp up its imports of U.S. products such that by the end of 2020 they would have met the goals for the year as a whole.  Therefore, I’ve broken down the annual goals into monthly goals that ramp up in a linear fashion to meet the annual goals.  For example, in order the meet the goal for their purchases of U.S. manufactured goods – $121.1 billion for 2020, starting from a baseline of $88.2 billion in 2017, which is $7.35 billion per month – China needed to import $7.772 billion in January, $8.194 billion in February, $8.616 billion in March, and so on, in order to reach $121.1 billion by the end of the year.

The results are in for January.  China failed to meet the goal for each category of products, and not by a little.  Here’s the results (in billions of dollars):

Category                     January Goal            January Actual

Manf’d Goods                 $7.772                          $5.597

Energy Products              $0.995                           $0.276

Agriculture Products       $2.16                             $0.944

Total Goods                     $10.921                         $7.215

Monthly data for services exports to China isn’t available.

In each case, China’s imports of American products not only didn’t meet the goals, but declined from the 2017 baseline levels.  One month’s worth of data isn’t enough to pass judgment yet on whether or not China is failing to live up to the “Phase 1” deal, since monthly figures vary up and down.  Like I said at the beginning, however, you’d think that China would want to get off on the right foot.  If I were Trump, I’d review the data through March (which isn’t released until May) and then warn China if their imports are lagging.  Three months later, I’d scrap the “Phase 1” deal and reinstate all tariffs that had been planned prior to its signing.  Hopefully, at that point, Trump will have learned a lesson about making any further trade deals with China.  There is simply no way that China will voluntarily reduce its trade surplus with the U.S.  Tariffs are the only way to make that happen.


No More Trade Deals, No More WTO

February 29, 2020

https://www.reuters.com/article/us-usa-trade/ustr-vows-to-push-for-trade-deals-with-britain-eu-seeks-reforms-at-wto-idUSKCN20M3BN

As reported in the above-linked article, the Trump administration continues to pursue more trade deals, with Britain, the European Union and now Kenya.  With his background in wheeling and dealing on real estate, Trump sees deal-making as the way to dig the U.S. out of the deep trade deficit pit it has fallen into.  Yes, I know, “digging” isn’t the way to escape from a hole.  It only makes the hole deeper.  That’s kind of the point I’m trying to make.  Trade deals are what got us into our trade mess in the first place, including the worst deal of all – the deal with the rest of the world to set up the World Trade Organization to oversee the whole process.

The whole point of a trade deal is to coerce another country into concessions (things they don’t like), using concessions of our own (things we don’t like) as the motivation.  Then what happens?  Being the global “nice guys,” we live up to our promises – the concessions we made – while the other side doesn’t.  We cajole them about their failures to live up to their side of the bargain.  They promise to re-double their efforts.  Months go by.  Still nothing happens.  Months turn into years.  The trade deal that was initially hailed as a “big win for American workers” instead yields a massive, persistent trade deficit and the dismantling of the manufacturing sector of our economy.

Why do we need trade deals?  Just tell us what you have for sale.  We’ll then decide if we want to buy it and how much we’ll buy.  We’ll reciprocate.  Here’s what we have for sale and here’s the price.  Buy it if you want.  But if you don’t buy from us as much as we buy from you, we’ll use tariffs to assure that a balance is maintained.

You want to sell us avocados?  Or coffee?  Fine.  We won’t put any tariff on them because we’re not able to grow them ourselves.  But you want to sell us a car?  We already have companies making and selling cars – more than we know what to do with.  So we’ll put a high tariff on your cars, unless you’re able to buy just as many from us.  That kind of seems pointless though, doesn’t it?

And we certainly don’t need a “World Trade Organization” setting rules to advance their own agenda.  The Trump administration is pushing the WTO to reform and end its practice of protecting developing countries like China at the expense of the U.S., and stubbornly insisting on “free” trade with other developed countries like those of the EU – countries whose gross overpopulation assures a trade deficit for the U.S. – even after decades of proof that a massive, destabilizing trade imbalance is inevitable.  Why bother?  We don’t need the WTO.  What can they do if they don’t like our tariffs?  They can authorize other countries to raise tariffs of their own, which is what they may or may not do anyway, regardless of whether or not the WTO even exists.  So the WTO really serves no purpose whatsoever, other than to suck funding from the American economy to support its endless meetings – meetings whose only purpose is to invent new ways to divide up the American market for the benefit of other countries.

Case in point:  Trump was having great success in cutting our trade deficit with China through the use of tariffs until he signed the “Phase 1” trade deal with them last month – a deal that had essentially been in place for months already, just awaiting the formality of the signing.  As a result, all of the momentum toward restoring a balance of trade with China has been lost.  The trade deficit status quo with China has been restored, albeit at a slightly lower level, and for what?  Chinese promises  – the same promises they’ve reneged on for years.  We’ve once again ceded control of the trade situation to China.

Another example:  the “USMCA” agreement with Mexico and Canada – supposedly an improvement over the NAFTA deal that devastated American manufacturing almost as badly as our trade situation with China.  What’s been the result?  Since Trump was elected, our trade deficit with Mexico continues to spiral out of control, and it’ll be years before anyone can say definitively that the USMCA agreement didn’t work.  (Anything less than a balance of trade with Mexico is a failure.)  The USMCA agreement eliminated the threat of tariffs on Mexico and put Mexico back in the driver’s seat of the trade relationship.

Throughout all of this deal-making for the past three years, the trade deficit declined slightly in 2019, and that decline was thanks to tariffs and not any deals.  The trade deficit remains enormous, leaving the manufacturing sector on life support and leaving us more vulnerable to recession and supply disruptions, something that’s becoming painfully obvious as the coronavirus problem worsens and we discover that we’re dependent on China for our supply of protective clothing and for pharmaceuticals to combat it.

President Trump, please, no more trade deals.  Kiss the WTO goodbye and put the U.S. Trade Representative’s office to work setting an managing tariffs.

 


Led by China, Trade Deficit Falls in 2019

February 10, 2020

https://www.bea.gov/system/files/2020-02/trad1219.pdf

As reported by the Commerce Department on Thursday, America’s trade deficit in goods and services fell in 2019 for the first time in six years.  Trade in goods fell for the first time since 2016.  The decline was due entirely to the reduction of imports from China as a result of the tariffs put in place by the Trump administration.

The trade deficit in goods in 2019 fell to $853 billion from $875 billion in 2018. The decrease was led by a huge decrease in the deficit with China, which fell to $345.6 billion from $419.5 billion in 2018.  The trade deficit with China was the lowest since 2015.  Even more encouraging, the trade deficit in goods with China fell for the 5th consecutive month in December to $24.8 billion.  Imports from China fell by $87 billion in 2019.

Last month, the Trump administration signed the “Phase 1” trade deal with China, which rolled back some tariffs on Chinese imports in exchange for Chinese promises to boost imports of American goods.  The deal had been in the works for months.  If the Chinese wanted to demonstrate enthusiasm for this deal, they certainly didn’t show it in December.  The Chinese promised to increase their purchases of American goods in four different categories, using their 2017 imports as a baseline.  In 2020 they are to increase their purchase of American manufactured goods from $88.2 billion in 2017 to $121.1 billion this year.  They ended 2019 with purchases of $88.4 billion.

They promised to increase their purchases of American energy exports to $27.6 billion this year from $9.1 billion in 2017.  They ended 2019 with purchases of only $3.6 billion.

They promised to increase their purchases of American agricultural products to $36.5 billion this year from $24.0 billion in 2017.  They ended 2019 with purchases of only $10.2 billion.

And they promised to increase their purchases of American services.  That data hasn’t been released yet.

China needs to ramp up its purchases of American goods dramatically, beginning with the month just ended.  Did they?  We won’t know until next month when the January trade data is released.  Personally, I doubt that we’ll see much increase from China, if any.  They’ve already signaled that they think the coronavirus outbreak should give them a pass.  Trump will be a fool if he lets China get away with reneging on this deal.

Next month I’ll begin reporting on China’s monthly progress in meeting the terms of this deal.  I’ll also be keeping a close eye on the balance of trade with Mexico, now that the USMCA agreement has been signed into law.  I’m extremely skeptical of both of these agreements.  The only way to achieve a balance of trade with such densely populated nations is through the use of tariffs.  Such nations would never willingly agree to any deal that endangers their surplus of trade with the U.S.  But they’ll agree to any deal that forestalls the implementation of tariffs because it simply buys them more time for business as usual.

Time will tell, beginning next month.

 


China Already Weaseling Out of Trade Commitments

February 5, 2020

https://www.reuters.com/article/us-china-health-usa-supply/white-house-adviser-says-china-virus-to-delay-u-s-export-surge-from-trade-deal-idUSKBN1ZY1SD

As reported in the above-linked article, China has already begun to weasel out of the commitments it made in the “Phase 1” trade deal, signed only two weeks ago.  They’re blaming the coronavirus outbreak and citing a clause in the deal that provides for relief in the event of a “natural disaster or other unforeseeable event.”  And it seems that the Trump administration is buying it.

Give me a break.  At the time of this writing, approximately 500 people in China have died as a result of this new virus.  Compare that to the approximately 50,000 people who have died this season from the flu in China.  Ten million people die every year in China from one cause or another.  Remember that this is a country of 1.4 billion people, and we’re to believe that 500 deaths have rendered them unable to meet their trade commitments?  Do people in China eat less or otherwise consume less because of this outbreak?

Only two weeks into the trade deal, and China is already proving that it never had any intention of complying.  Rather, it was just a ploy to buy some time and tariff relief, in just exactly the same way that every other trade commitment it has ever made was merely a ploy to make the U.S. shut up and go away.  It seems to be working again.


Is the “Phase 1” trade deal with China a bad deal?

January 20, 2020

https://www.reuters.com/article/us-usa-trade-china-details-factbox/whats-in-the-u-s-china-phase-1-trade-deal-idUSKBN1ZE2IF

The above-linked Reuters article provides a breakdown in basic terms of what’s included in the “Phase 1” trade deal with China.  To make it easier to understand – and in preparation for tracking progress – I’ve created this spreadsheet, which shows what China has agreed to in terms of boosting its imports from the U.S.  Phase 1 China Trade Deal.

In addition, China agreed to:

… stronger Chinese legal protections for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeit goods.

…  follow through on previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms

… refrain from directly supporting outbound investment aimed at acquiring foreign technology

… refrain from competitive currency devaluations

China’s retaliatory Dec. 15 tariffs, including a 25% tariff on U.S.-made autos, have been suspended.

So what did the U.S. give up in return?

… will cut by half the tariff rate it imposed on Sept 1. on a $120 billion list of Chinese goods, to 7.5%.

Tariffs that were scheduled to go into effect on Dec. 15 on nearly $160 billion worth of Chinese goods, including cellphones, laptop computers, toys and clothing, are suspended indefinitely.

That’s the deal in a nutshell.  On the surface, it sounds like a good deal, boosting exports by $200 billion per year.  But don’t be fooled.  This deal rolls back some existing tariffs and suspends new tariffs – tariffs that were making rapid progress toward restoring a balance of trade with China – in exchange for nothing more than promises, and China has a long history of breaking its trade promises.  China got exactly what it wanted – time – more time to continue business as usual.

With this deal, the U.S. is once again trying to export its way out of its massive trade deficit.  It’s similar to the vow that Obama made in January of 2010 to double export within five years.  It didn’t happen.  Not even close.  It’s impossible to export your way out of a trade deficit with nations whose gross over-crowding makes them utterly dependent on manufacturing for export to sustain their bloated labor forces.  And that’s China, among others.

Aside from their promise to boost imports, that promise about protecting intellectual property has been made many times before.  It’s untrackable and meaningless.  And currency manipulation?  The data proves that trade deficits have nothing to do with currency valuation.

The only hope is that the Trump administration will be more diligent than previous administrations in holding China’s feet to the fire, returning to the use of tariffs when China fails to meet its commitments.  China’s betting they won’t, and that future administrations will roll over like previous administrations.

I’ll begin tracking China’s progress on meeting its import commitments (or lack thereof) beginning with the January trade data, which isn’t released until March.