Trump’s China Deal: A Lot of Smoke, But No Fire

“The greatest and biggest deal ever for our Great Patriot farmers.” That’s what Donald Trump shouted from the rooftops after concluding a trade deal with the Chinese a week ago. He really needed to raise his voice, because from an economic standpoint this deal is baloney. So why so much crowing from the American president? Simply because the 2020 presidential election is rapidly approaching and he needs something to show his voter base; basically, he hopes to mollify American farmers. For several reasons, however, this deal won’t change the actual situation much.

First, China has already begun to buy more American agricultural products – up to $50 billion worth, according to Trump, but only enough for its own needs according to China – and this will make only a tiny hole in the immense U.S. trade deficit with China, which is over $400 billion. The Chinese government will also refrain from manipulating its currency, which it actually stopped doing some years back; the recent devaluation is merely due to market forces. China will continue to open its markets to the rest of the world, and an initial measure would eliminate credit ceilings for foreign investment companies, which it had promised to do before the deal. In exchange, the United States will withdraw tariffs of $250 billion on Chinese imports, with those tariffs already in effect remaining unchanged. Worse than lacking anything new, the itemized text won’t take effect for another five weeks, so it could be that Trump is only embellishing his image – the Chinese seem much less optimistic about it.

Second, this deal doesn’t really address the root causes of the trade war. Chinese commercial practices won’t budge an inch after this deal, not in their lack of respect for intellectual property, technology transfer, cyber espionage, government subsidies for enterprises or dumping goods on other countries. Therefore, we have light years to go before the changes for which Americans hope will materialize.

Finally, the Chinese threat to America endures. This conflict is nothing less than a competition for technological supremacy in the 21st century. Even if China has never adhered to Western values, such as democracy and human rights, it has built an awesome commercial empire which now really frightens Americans, who are ready to do anything to maintain their status as number one. However, Xi Jinping has a clear conception of China’s future, one in which it not only dominates the world economically with initiatives like “Made in China 2025,” the New Silk Road and numerous acquisitions of European companies, but also dominates militarily, starting with the South China Sea.

We must thus remain highly skeptical of Trump’s optimism, because this deal is terribly lacking in teeth. It could very well lead to nothing, just like the two previous deals announced last December and June during G-20 meetings, both of which vanished. What’s more, this trade war adds to other dangers threatening the global economy, such as Brexit, new American tariffs on EU products and tensions in the Middle East; according to the International Monetary Fund, the cost of the Chinese-American trade war on global economic recovery will be 0.8% of the GDP. We must suffer patiently, because this dispute between Trump and Xi risks continuing, especially if Trump wins a second term, which is certainly possible since the majority of American businesses believe it could happen. In that event, Trump could behave as he pleases toward China without worrying about reelection, and the trade war would take on a new intensity. So buckle your seat belts – there’s a rough ride ahead!