If that’s what ends up happening, markets are likely to celebrate. Not because this will represent progress, necessarily. Mostly because it might signal a reprieve from a highly feared scenario: that President Trump would follow through with threats to ratchet up tariffs on $200 billion of Chinese goods from his already destructive rate of 10 percent to a possibly disastrous 25 percent after March 1.
To be fair, it would be fabulous if these talks actually lead China to respect intellectual property rights; end forced technology transfer, cybertheft and huge market-distorting subsidies; and commit to enforcement mechanisms and accountability measures for all these objectives.
But this outcome seems highly unlikely at present.
Not just because it would be challenging to, oh, map out a wholesale restructuring of the entire Chinese economy within a few weeks. Also because there is serious opposition within China to some of these changes, particularly when they’re framed less as economic reforms and more as abject, humiliating capitulation to a U.S. bully’s demands. Which is exactly the narrative Trump has been feeding.
Then there’s the problem of what Trump cares most about extracting from China. Historically, he has fixated on reducing our bilateral trade deficit and not these important but challenging structural issues.
Trade balances, as (almost) any economist could tell you, are not really what matters; they are determined by all sorts of complicated factors unrelated to whether countries are playing fair, including savings and investment rates. Despite Trump’s claims, we’re not “losing” when we buy more stuff from China than China buys from us; we’re still getting stuff from China that U.S. consumers and businesses want.
Given Trump’s interests, however, the most tangible “win” likely to come out of our nearly year-long trade war might be a commitment from China to buy more U.S. products, in particular agricultural goods.
Needless to say, there’s a bit of cognitive dissonance in asking China both (A) to move away from centralized economic planning and (B) to make more state-directed purchases of U.S. soybeans.
Here’s the bigger problem. Though Trump may hold off on raising tariffs to 25 percent, he also looks likely to keep his existing 10 percent tariffs in place. Which would still leave plenty of U.S. firms twisting in the wind.
Most of the Chinese products that Trump has slapped tariffs on, after all, are inputs that U.S. companies must buy to manufacture their own products. As Syracuse University economist Mary E. Lovely has noted, in some cases, alternative sourcing is not available, especially not on short notice.
That means U.S. firms are facing higher costs and becoming less competitive. Some are contemplating moving production out of the United States to dodge Trump’s tariffs.
Lots of other U.S. businesses are also suffering, particularly as they face tit-for-tat tariffs that may or may not be alleviated in the weeks to come. Even if China were to decide for some reason to asymmetrically lift its retaliatory tariffs while we kept our 10 percent duties in place, perhaps as part of a commitment to buy more U.S. goods, in many cases the damage has already been done: Bankruptcies across the Farm Belt have soared to their highest levels in at least a decade.
But never mind all that. Trump wants a win, and he’s likely to claim he got one, regardless of whether Beijing ends up doing anything it had not already planned to do in the absence of this trade war. And positive reinforcement from market participants relieved that things didn’t get any worse may encourage him to repeat this whole process all over again.
That’s the lesson he seems to have taken away from the NAFTA 2.0 negotiations, even though those ended with virtually the same deal we could have expected to reach without first alienating some of our closest allies with unnecessary tariffs.
A repeat performance is no remote idle hypothetical. This past Sunday, the Commerce Department handed Trump its long-awaited report on whether tariffs on autos and auto parts — nearly universally opposed by the U.S. auto industry — would be justified on national security grounds. The report has not yet been released, but Trump told reporters Wednesday that regardless of what it says (and, implicitly, how much domestic damage the policy might cause), he plans to use the threat of car tariffs as leverage in his negotiations with the European Union.
So buckle up for another round. Some people never learn.