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Conservatives Lukewarm On China Trade Deal Miss The Point

Trump signs phase one
Our friend David McIntosh, President, of the Club for Growth spoke for many conservatives in a statement he issued yesterday saying, “While the Phase One of the trade agreement helps expand American sales into China, the Club for Growth is disappointed that the U.S. is not also removing tariffs which middle-class Americans and businesses will be forced to continue to pay out of our own pocket.”

Mr. McIntosh went on to point out that, “While this agreement gets us to a good economy for 2020, eliminating the tariffs could get the U.S. a great economy and could add another .5% to 1% to GDP growth on top of the .5% predicted from the deal. The agreement also does not significantly address the significant Chinese cybertheft of American products and ideas. It is too bad that yet again Secretary Mnuchin has let down President Trump and conservatives by failing to deliver a deal that benefits middle-class Americans with lower prices and a level playing field.”

Our friend David McIntosh is right about the limits of the deal. As the Associated Press reported in its analysis, the so-called Phase 1 pact does little to force China to make the major economic reforms — such as reducing unfair subsidies for its own companies —that the Trump administration sought when it started the trade war by imposing tariffs on Chinese imports in July 2018.

Under the Phase 1 agreement, which the two sides reached in mid-December, the administration dropped plans to impose tariffs on an additional $160 billion in Chinese imports. And it halved, to 7.5%, existing tariffs on $110 billion of good from China.

“The signing of the Phase 1 deal would represent a welcome, even if modest, de-escalation of trade hostilities between China and the U.S.,” Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund’s China division told the AP. “But it hardly addresses in any substantive way the fundamental sources of trade and economic tensions between the two sides, which will continue to fester.’’

Moreover, by starting with the agriculture portion of the potential deal the Trump team has helped China with one of its most pressing domestic political problem: a looming food shortage.

In Phase 1 Beijing agreed to significantly increase its purchases of U.S. products. According to the Trump administration, China is to buy $40 billion a year in U.S. farm products — an ambitious goal for a country that has never imported more than $26 billion a year in U.S. agricultural products said the Associated Press.

However, China has lost half of its hogs, some 300 million, due to what is effectively an incurable ebola-like disease.  They need protein and are buying a lot of chickens, beef and soybeans as protein replacements.  To put the Chinese hog loss in perspective, the United States has about 70 million hogs total, and the Chinese have LOST more than four times that number said Rick Manning, President of Americans for Limited Government.

According to the Associated Press report, Trump administration argues that the Phase 1 deal is a solid start that also includes Chinese commitments to do more to protect intellectual property, curb the practice of forcing foreign companies to hand over sensitive technology and refrain from manipulating their currency lower to benefit Chinese exporters. In advance of the Phase 1 signing, in fact, the Treasury Department on Monday dropped its designation of China as a currency manipulator.

And by maintaining significant tariffs on Chinese imports, the administration retains leverage to force Beijing to abide by its commitments — something the United States says Beijing has failed to do for decades.

“We’ve never punished them before,” said Derek Scissors, China specialist at the American Enterprise Institute. “If you don’t have tariffs, you can write down anything you want, and the Chinese will cheat.’’

But there’s another angle to the timing and focus of the Phase 1 deal that commentators on the Right seem to be missing – it helps Trump solve a potential domestic political problem of his own.

American farmers and ranchers have taken a hit in the trade war with China, and they represent a significant voting bloc in Midwestern states, such as Iowa, Kansas, Nebraska, Minnesota, the Dakotas and Wisconsin.

Clive McKeef, Editor of Market Watch, reported in November 2019 that “Net farm income, a broad measure of profits, has fallen 45% since a high of $123.4 billion in 2013 to about $63 billion last year, according to the USDA. The level of Chapter 12 bankruptcy filings in the farm sector is at the highest level since 2012.”

Conservative critics of the Phase 1 China deal may in the abstract be right on the principles, but seem to be missing the point that a massive Chinese purchase of agricultural products will make American farmers some serious money and pump much needed cash into the economies of a dozen Heartland states before the 2020 election. So, it is little wonder that Donald Trump, always the keen-eyed negotiator started there, instead of with the provisions that benefit Silicon Valley, where he is not going to get any political benefit no matter what he does.

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