An Urban's Rural View

The United States-China agreement to reduce tariffs is undeniably a good thing. People like me who have criticized the Trump tariffs (https://www.dtnpf.com/…) are happy to see it.

But while it's a good thing, it's not a great thing. And it's certainly not a triumph for the president.

It's good because if we'd stuck to the trade-war tariffs -- ours at 145% and theirs at 125% -- commerce between the countries would have come to pretty much a complete halt.

At the new levels of 30% and 10% routine commerce -- including agricultural trade -- will at least be possible, though still in many cases difficult. The U.S. will instead be able to focus on ending its reliance on China for critical products it can't currently get elsewhere. That should be goal number one.

Some trade between the countries is good, some less so. As treasury secretary Scott Bessent put it, the U.S doesn't want "generalized decoupling" from China. It wants "strategic decoupling."

Financial markets seemed pleased that it was the somewhat more pragmatic Bessent speaking for the administration on tariffs this time and not Peter Navarro, the White House aide who was a key figure behind the massive tariffs on China and other countries.

The deal is also a good thing because it raises hopes of further improvements in U.S-China trade arrangements as negotiations continue. American Farmers and ranchers, for example, wouldn't mind getting China's tariffs and other barriers to U.S. ag products eliminated altogether.

It's not a great thing because it's only a 90-day suspension and the tariff levels, while reduced, are still very high and levied on critical and non-critical products alike.

More importantly, it's not a great thing because the administration is still wasting the opportunity to do the one thing that would have the best shot of reducing America's dangerous dependence on China -- coordinate China tariffs and industrial policies with our allies.

China dominates world manufacturing and it's investing heavily to further dominate it. China wants to rely on the rest of the world for very little and have the rest of the world rely on it for critical manufactured products, from steel to semiconductors, and many non-critical products as well.

By building up huge manufacturing capacity it achieves economies of scale that leave foreign competitors unable to match its prices.

There's bipartisan consensus that this poses a danger to the U.S. It also poses a danger to Japan, South Korea, the European Union, Canada and other traditional U.S. allies. As I've pointed out previously, a strong case can be made that no single country can protect itself by acting alone. (https://www.dtnpf.com/…) China's scale advantages are just too big. (https://www.foreignaffairs.com/…)

Instead of coordinating tariff and industrial policies with allies, though, the administration is treating allies as if they were enemies. Our "reciprocal" tariff on Japanese products is now 24%. The tariff on autos, Japan's most important export, is 25%. Our "reciprocal" tariff on the European Union is 20%.

(Reciprocal is the administration's term, but the tariffs are not reciprocal in the usual sense of the word; the other countries aren't levying the same tariff on U.S. exports.)

China's 90-day "reciprocal" tariff, by contrast, is 10%; the 30% includes a 20% penalty tariff related to fentanyl. China has indicated some willingness to clamp down on fentanyl. If it does, China could end up with lower U.S. tariffs than Japan or the EU.

That would not be a great thing.

The administration is naturally claiming the agreement as a victory. The Chinese, however, think the victory is theirs. They have a point.

When Trump imposed the 145% tariffs in early April, Chinese President Xi Jinping didn't back down or grovel. He hit back with 125% tariffs on U.S. exports. He told Chinese citizens to prepare for a trade war.

Realizing the Chinese were willing to tough it out, and facing uneasy financial markets and unhappy American businesses, Trump admitted the tariffs would have to come down. The deal his negotiators eventually struck simply rolled back each side's tariff levels by 115 percentage points. It didn't involve Chinese concessions.

As the Wall Street Journal editorial page put it, the deal marked a "major retreat" by the administration and a "win for economic reality." (https://www.wsj.com/…)

Trump's tariffs on allies have eroded trust in the U.S. Let's hope it's not too late to reverse that mistake and regain at least some trust.

Neither the U.S. nor its allies can afford to depend on China for critical products. The best way to ensure that doesn't happen is to work with our allies instead of against them.

Urban Lehner can be reached at urbanize@gmail.com

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