Historians will puzzle over this turn of events: A Republican U.S. president endorses central planning for trade, while a communist government in China cautions, in its trade deal with the U.S., that international commerce must reflect “market conditions.” The American president boasts about raising import taxes on Americans and restricting immigration, while the Chinese lower trade barriers, encourage foreign investment and rely more on open-source software.
The administration’s “phase one” deal with China commits the government in Beijing to prescribe amounts of purchases of U.S. agricultural and manufacturing goods, which only magnifies the Communist Party’s role in the economy. The deal permits each side to use its own statistics, so China will likely “meet” some quotas by reclassifying U.S. exports to Hong Kong that middlemen sell to the mainland.
Beijing will redirect commodity purchases—fuels, food, chemicals—but other importers will shift from U.S. producers to third countries. Mr. Trump is paying a price to manipulate the bilateral trade balance, and it won’t affect America’s overall trade deficit. The numbers will likely conflict, leading to more fights—after the election.
Mr. Trump’s protectionism is certainly expensive. His new tariffs will cover almost two-thirds of U.S. imports from China, with an average tax of almost 20%, compared with 3% before. China’s retaliatory tariffs hit almost 60% of U.S. exports, with an average rate of 20.5%, up from 8% before the current administration.
And remember Mr. Trump has had to pay about $25 billion to compensate farmers hurt by his trade war. Farmers suffered a 24% surge in bankruptcies in 2019, and the U.S. lost about a percentage point of growth (another $200 billion), according to a Federal Reserve study.
The president’s China tally is part of his belief in command economics for trade and investment. New administration directives are also adding controls on exports, supply chains and foreign investment. Mr. Trump personally badgers companies not to invest abroad when he is displeased. The U.S. needs security checks, but he has wielded national security indiscriminately as a club to bludgeon allies. Companies will have to pay political favors to placate regulators.
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