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This week in Trumponomics: A hollow deal with China

Rick Newman
Senior Columnist

Markets like it. But does the “phase one” trade deal President Trump announced with China pass the Trump Arson Test?

Trump often takes credit for putting out fires he lit himself. And so farm that seems to be the case with the agreement Trump reached with China on Oct. 11. The deal averts a tariff hike Trump had scheduled for October 15, in exchange for increased Chinese purchases of U.S. agricultural products. The stock market rose on the news, since it removes some uncertainty about tariffs rising even higher in the future.

Nothing is in writing, however. Negotiators will work out the details during coming weeks, with a formal deal possible in mid-November, when Trump is scheduled to meet Chinese President Xi Jinping in Chile. Oh, the two sides also haven’t worked out the biggest issues, which involve fundamental reforms to China’s economy. China will allow more US access to China’s financial sector, but there are no agreements about China halting its theft of foreign technology or its subsidies to huge government-controlled firms. And all of the Trump tariffs now in place will stay there.

Greg Daco, chief US economist for Oxford Economics, called the agreement an “itsy-bitsy-teeny-weeny handshake deal” and said, “Behind the hype, this is nothing more than a partial and ostensibly unsustainable deal lacking in real enforcement mechanisms. For businesses this will mean less damage, not greater certainty.”

The deal also fails the Trump Arson Test. It averts any further escalation in the trade war, for now, but it still leaves substantial barriers to trade that weren’t there before Trump started the trade war in 2018. The Trump-o-meter is unimpressed, giving Trump a MEDIOCRE score this week, the third highest.

Source: Yahoo Finance

Trump’s score will go higher in the future if he makes headway on serious trade abuses. The problem is, those are tough concessions to wring out of China. “While the two sides will continue discussing these issues, they are unlikely to break through the impasses and arrive at a broader trade deal this year or next,” Eurasia Group analysts wrote to clients as details of the deal emerged. “The two sides will now return to a ‘muddle through’ strategy that avoids further tariff escalation but may not substantially reduce tensions.”

It’s also possible the deal breaks down in coming weeks. Trump can re-up his tariff threat at any time, and history shows he gets prickly if he feels China isn’t dealing with him favorably. More than once, he has imposed or raised tariffs while expressing personal pique at China’s dismissiveness. China could also cheat, refusing to fulfill its own promises, which would undoubtedly enrage Trump.

The average tariff on Chinese imports has risen from 3.1% when Trump took office to around 21% now, according to the Peterson Institute for International Economics. That tax on imports is costing the U.S. economy about $90 billion per year. Retaliatory tariffs on U.S. exports cost another $104 billion per year. Those hits to the economy remain intact under the latest deal. The arsonist has left much of the fire burning.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.

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