An Urban's Rural View

A Report From the Trade-War Battlefield

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
Connect with Urban:
The deal commits China to buy $36 billion in U.S. farm products in 2020 and $43 billion in 2021. (DTN file photo)

Now that the United States and China have signed the phase-one agreement, it's time for an update from the trade-war battlefield. The first thing to note is that we're still very much on that battlefield.

Phase one's signing marks at best an uneasy truce. Hostilities will resume as the two countries begin negotiating subsequent phases.

There had been fears that China would be reluctant to negotiate the tougher issues left to phase two, like China's subsidies to its domestic-champion companies. The terms of the phase-one deal ease those fears. Especially important is the continuation of 25% tariffs on $250 billion of China's exports to the U.S. That encourages China to continue negotiating.

How much farmers and ranchers will benefit from phase one should become clear within the next several months. The deal commits China to buy $36 billion in U.S. farm products in 2020 and $43 billion in 2021.

Assuming the Chinese don't totally renege, this year's U.S. ag exports to China will likely top last year's $14.5 billion. Whether they make the credulity-straining leap to $36 billion or even to the pre-trade war highs in the mid-20 billions remains to be seen.

The Wall Street Journal interpreted the failure of soybean prices to rise dramatically in the wake of the phase-one deal signing to mean the market has doubts about how much the Chinese will buy. (https://www.wsj.com/…)Many trade experts have doubts, as well. The Coronavirus's drag on China's economy reinforces this skepticism.

President Donald Trump considers phase one a vindication of his "maximum pressure" strategy, which uses tariffs as negotiating leverage. Citing the China agreement, he is renewing his threat to impose big tariffs on imports of European cars if the European Union doesn't agree to a "fair" trade deal. In a sign that his threat has been heard, France has agreed to hold off on a proposed digital tax on U.S. technology companies.

The Chinese may be conceding Trump's point. It's telling that China's dictator, Xi Jinping, dodged signing the agreement with President Trump. In leaving that chore to Vice Premier Liu He, Xi was trying to distance himself from a deal that doesn't give China the tariff relief it was demanding.

It's also telling that the Communist Party leaders have been assuring the Chinese people that the agreement is fair and balanced. (https://sinocism.com/…)That they feel compelled to issue those assurances suggests they have a problem: The Chinese public perceives the deal as lopsidedly in favor of the U.S.

Avoiding "national humiliation" has been one of Xi's favorite rallying cries since he took office in 2012. Now China has signed a deal that to many Chinese seems like an echo of the national humiliations of the 19th century. They included ceding Hong Kong to the British and giving several countries favorable trade terms in the wake of China's defeat in the Opium War. (https://www.britannica.com/…)

All in all, then, phase one seems to be a victory for the U.S., even if it leaves the tougher negotiations for the future. What needs to be examined is whether it could turn out to be a Pyrrhic victory.

The term derives from a comment by King Pyrrhus of Epirus on battles he won in 280 and 279 BC while suffering irreplaceable casualties. According to the historian Plutarch, "The armies separated; and, it is said, Pyrrhus replied to one that gave him joy of his victory that one other such victory would utterly undo him." (https://www.thoughtco.com/…)

Free traders think Trump's victories are Pyrrhic because they were won by violating international trade rules the U.S.worked hard to establish. Robert Zoellick, who has served as U.S. Trade Representative and Deputy Secretary of State in Republican administrations, argues that "America throws away its best cards whenever it surrenders its commitment to open, fair rules—backed by and enforced with allies." (https://www.wsj.com/…)

But even those who prefer managed trade, as the president does, may wonder if this deal resembles Pyrrhus's. Start with the fact that China's economy has become a major force for world growth, which benefits the U.S. Not only does a strong domestic economy enable China to buy American goods; other countries prosper by selling into China's growing market and can then afford to buy from the U.S. Could this deal undermine China's economy, directly or indirectly?

More broadly, there's the potential damage to the U.S.-China relationship. A relationship with China that seeks ways to cooperate while conceding points of difference helps foster world peace. Could this deal, touching as it does on the sensitive nerve of Chinese national humiliation, lead to a much more adversarial U.S.-China relationship?

Whether the short-term gain of phase one damages the Chinese economy and worsens the U.S.-China relationship in the long run are questions to continue pondering. For now, let us all hope that this victory does not leave us utterly undone.

Urban Lehner can be reached at urbanize@gmail.com

(ES/)

Comments

To comment, please Log In or Join our Community .