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Why Trump will likely reach a deal with China by the end of summer

President Donald Trump will likely reach a deal with China this summer given his “deeply underwater polling in key 2020 states,” Pantheon Macroeconomics Chief Economist Ian Shepherdson writes in a new note.

Trump has a net-zero or negative approval rating in eight crucial swing states that he won in 2016, including Iowa and Ohio, which are big exporters of soybeans.

Swing states are among the hardest hit by the trade war because of its impact on agriculture. Soybeans are China’s top agricultural import from the U.S., making up 52% of all U.S. agricultural exports to China, according to the U.S. Department of Agriculture. And the trade dispute has hit U.S. soybean exports hard. U.S. soybean exports to China were down $8.7 billion (82%) from August 2018 to March 2019, compared with a year earlier, according to the Department of Agriculture.

At the G20 Summit over the weekend, President Donald Trump and Chinese President Xi Jinping reached a truce. “We are right back on track,” Trump said after the bilateral meeting. Trump backtracked on his threat to impose additional tariffs on Chinese goods and even gave permission to American companies to sell technology to Chinese tech giant Huawei. For its part, China has agreed to start buying U.S. farm products and other products that it had stopped purchasing because of the tariffs, Trump said Saturday.

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque TPX IMAGES OF THE DAY

Trump’s tariff policies are facing political backlash. By agreeing to purchase U.S. agriculture goods, China enabled Trump to “back down from his hollow threat to impose tariffs on Chinese consumer goods,” Shepherdson said in his recent note. Trump’s prior reversal after threatening tariffs on Mexico indicates that “his legal freedom of room for maneuver on trade is subject to very real political limits. Republicans in the Senate offered zero support for Mexican tariffs, and the president caved,” Shepherdson writes.

In the case of China, there is agreement among both Republicans and Democrats that China’s abusive trade practices and IP practices need to end, Shepherdson writes. But applying tariffs to Chinese consumer goods in order to pressure China into changing its ways lacks bipartisan support, he adds.

“Imposing tariffs on Chinese consumer goods has no support from any U.S. politician who wants to be re-elected in a vaguely competitive House district or Senate seat,” Shepherdson writes.

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