Print Edition - 2019-03-07 | MONEY
Why a meaningful US-China trade deal could be hard to reach
Mar 7, 2019-
Under President Donald Trump, America’s trade deficit with China has so far worsened. That gap represents an unfulfilled Trump pledge just as talks between the world’s two largest economies may be nearing a potential deal to suspend their trade war.Despite signals from Chinese and US officials that some truce could soon be at hand, there are few signs of any truly transformed trade relationship. Beijing’s longstanding policy of subsidising its own businesses and charges that it illicitly obtains US technology remain key obstacles.
During the first 11 months of 2018, America’s trade deficit in goods with China—the gap between the value of US goods that China buys and the higher value of what it sells to the US—swelled to a record $382 billion. And a government report to be released Wednesday is expected to show the US deficit with China reaching a new high above $400 billion.
A senior Trump administration official asserted that progress had been made during trade talks over the past two weeks, only to acknowledge that the eventual outcome remains a mystery and that China faced no timetable for responding to the US priorities. The official insisted on anonymity to discuss private conversations.
US and Chinese officials have hinted that some kind of agreement could be finalised by the end of March, with Trump and President Xi Jinping possibly meeting to formalise the deal at Trump’s private club in Mar-a-Lago, Florida.
For its part, Beijing is publicly expressing its intent to crack down on policies that have long enabled Chinese companies and local government officials to force American and other foreign businesses to share their technology as the price of admission to the vast Chinese market. But such public pledges represent far less than the enforceable commitments to reform such policies that US negotiators are seeking.
Last year, Trump imposed a series of tariffs on Chinese goods in hopes of pressuring Beijing to support more favorable terms for the United States. In June, the White House levied import taxes of 25 percent on $50 billion of Chinese imports. It followed in September with 10 percent duties on an additional $200 billion.
All told, the US tariffs covered roughly half of what the US buys from China.
But the blowback from the Trump tariffs—and China’s retaliatory import taxes on US goods—has been steady, at home and abroad. Many businesses are now paying higher costs to import electrical components and other goods from China that aren’t made in the United States. The duties cost consumers $1.4 billion a month and businesses $3 billion a month by the end of last year, according to research released last week by Mary Amiti, an economist at the Federal Reserve Bank of New York, and economists from Princeton and Columbia universities. And a survey led by the Federal Reserve Bank of Atlanta found that the tariffs had caused US companies to cut their spending on large equipment by 1.2 percent, or $32.5 billion, last year.
Both figures are relatively modest, given that the US economy produces $20 trillion of goods and services a year. But there are also secondary effects. The stock market plummeted 19 percent last fall, partly on fears that the trade war would inflict severe damage.
Nor have the tariffs provided the negotiating leverage that Trump sought. Many of China’s concessions appear designed to appease some US concerns, rather than establish guidelines for trade that each country would be bound to follow.
Beijing has offered to buy more American farm goods and energy—a pitch that Xi made to Trump when they met during a December dinner at a global conference in Buenos Aires with the idea of narrowing the US trade gap with China.
China’s ceremonial legislature was poised this week to back a law that would discourage officials in the country from pressuring US companies to hand over technology. It was a response to concerns about Chinese disrespect for intellectual property that Trump had raised when he first imposed import taxes on Chinese goods.
But it’s unclear whether China would actually enforce this commitment—a concern that could potentially prevent a meaningful trade agreement.
Published: 07-03-2019 12:23