President Trump claimed victory on two fronts of his global trade war this week after securing a preliminary deal with China and a replacement for the North American Free Trade Agreement (NAFTA).
The Senate approved Trump’s NAFTA rewrite, dubbed the United States-Mexico-Canada Agreement (USMCA), by a resounding margin Thursday, one day after the president signed a “Phase One” trade deal with China’s Vice Premier Liu He.
Trump celebrated the two deals as promises kept to his supporters less than a year before Election Day.
“The farmers are really happy with the new China Trade Deal and the soon to be signed deal with Mexico and Canada,” Trump declared in a Thursday tweet, “but I hope the thing they will most remember is the fact that I was able to take massive incoming Tariff money and use it to help them get through the tough times!”
Each deal gives Trump an arsenal of big numbers and lucrative concessions to tout on the campaign trail with a strong economy at his back. Even some of Trump’s fiercest critics — and potential replacements — backed his NAFTA reboot after securing unprecedented protections for laborers.
But trade experts say the deals may do more to boost the president’s reelection campaign than the U.S.’s trade relationships, particularly with China.
Edward Alden, a senior fellow at the Council on Foreign Relations, said the China deal “represents an encouraging truce,” but doesn’t touch the “big issues about the structure of the Chinese economy and the distortions that causes in world trade.”
“If you think back to what really started to increase U.S. concerns over China,” Alden added, “this deal does nothing about that.”
Trump stormed into the White House in 2017 on a promise to rip up NAFTA and crack down on China after decades where members of both parties argued Beijing’s policies bilked U.S. businesses and farmers.
Trump’s scorn for bipartisan free trade agreements helped him endear him to voters in blue-leaning industrial states such as Michigan, Pennsylvania and Wisconsin that lost millions of factory jobs after NAFTA’s 1994 enactment. All three of those states broke for Trump in 2016 after supporting Democratic presidential candidates for more than two decades and are key to his 2020 prospects.
Trump has touted his new deals as a crucial step toward stopping the bleeding of U.S. jobs, saying Wednesday that the U.S. and China “are righting the wrongs of the past and delivering a future of economic justice and security for American workers, farmers and families.”
But the agreement with China does not address the forces driving the decline in U.S. manufacturing jobs and Beijing’s open ambition to dominate the production of essential technology by 2025.
The deal also doesn’t address China’s long-running practice of pouring subsidies into domestic companies to produce an oversupply of industrial materials, such as steel, to price out American competitors.
“There are a long running series of challenges for the US and China this deal doesn’t even scratch,” Alden said. “There’s a whole technology war going on alongside this trade war, and that is going to continue in force this next year and beyond, even as we have this trade truce.”
Trump and his top advisers acknowledge that the current deal leaves a lot to address with China in a proposed “Phase Two” agreement. The president is keeping 25 percent tariffs on $250 billion and 7.5 percent tariffs on $120 billion in Chinese goods to ensure Beijing remains at the negotiating table.
“The other half, it’s not that we didn’t get it, it’s just incomplete,” said Larry Kudlow, director of the White House National Economic Council, in Wednesday remarks to reporters.
The centerpiece of Trump’s deal with China is a commitment from Beijing to boost purchases of U.S. goods and services by $200 billion over the next two years, including $77.7 billion for manufactured goods and $32 billion for agricultural products.
While the president may be eager to boast of a new contract with Beijing, trade experts say it’s unlikely that China can meet such high demands. U.S. farmers may also be wary of devoting their entire crop to Chinese buyers and leaving their bottom lines at the mercy of Beijing.
“Do you want to put all your soybeans in one basket?,” said Bill Reinsch, a senior adviser at the Center for Strategic and International Studies.
“Do you want to have one single giant customer who buys everything,” knowing that they have “a long record of turning the spigot on and off depending upon how they feel about you at the moment?”
Forcing China to buy such vast quantities of U.S. crops could also require Beijing to cut off business with other agricultural exporters, which may spur lawsuits and challenges before the World Trade Organization (WTO).
“There are almost certainly WTO challenges in it because you can’t specify import requirements,” said Rachel Pierson, a senior research analyst for Beacon Policy Advisors. “You can’t have quotas of amounts to buy from someone in this way, as I understand it.”
Neither Trump’s trade deal with China nor USMCA drastically change the terms of trade between the U.S. and those nations. But both pacts do include some significant changes that could yield benefits across the U.S. economy.
The USMCA increases the threshold of North American parts an automobile must have to avoid tariffs, opens Canadian markets up to U.S. dairy farmers and sets new rules for digital trade practices unheard of when NAFTA was written.
The phase one deal with China codified Beijing’s commitments to respect and protect the intellectual property of U.S. businesses, cease forced technology transfers and allow foreign banks, credit card companies and insurers into domestic markets.
The agreement also requires China to scrap excessive regulatory reviews and health testing for U.S. products used to halt American exports from entering the country under the pretense of food safety.
China has a track record of shirking on trade commitments, though the pain of U.S. tariffs could induce Beijing to cut its losses. Alden said that China is known for finding subtle ways around trade rules that are tough to prosecute.
“The commitments on paper are not that different from what the Chinese have said in the past,” Alden said. But he added that “the will to enforce may be greater now than it was in the past.”