Tuesday, September 29, 2020

Trump signs deal with China, calls trade pact a 'momentous step'

Jan 16. 2020
President Donald Trump on Wednesday signed a trade deal with China, proclaiming it a landmark rebalancing of an economic relationship that had cost the United States millions of good-paying factory jobs.
President Donald Trump on Wednesday signed a trade deal with China, proclaiming it a landmark rebalancing of an economic relationship that had cost the United States millions of good-paying factory jobs.
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By The Washington Post · David J. Lynch 

WASHINGTON - President Donald Trump on Wednesday signed a trade deal with China, proclaiming it a landmark rebalancing of an economic relationship that had cost the United States millions of good-paying factory jobs.

The deal reflected the president's distinctive reshaping of American trade policy, relying on government dictates rather than market forces and establishing a direct enforcement system outside the World Trade Organization.

The 86-page agreement, which comes after a protracted standoff between the two nations, commits China to buy an extra $200 billion in American products over the next two years.

Under a novel enforcement mechanism, the two sides have agreed to resolve any disputes through a process of direct consultations that will be backstopped by the threat of new import tariffs.

The president took a victory lap for the deal - the most consequential achievement to date from his "America First" policy - by presiding over a loosely organized, 75-minute White House ceremony.

"Today we take a momentous step, one that has never been taken before with China, towards a future of fair and reciprocal trade," Trump said. "It just doesn't get any better than this."

With Chinese Vice Premier Liu He and three other senior Chinese officials standing by his side, the president complained that China had taken advantage of the United States on trade for years.

"It was pillage," Trump said.

Trump's China bargain is the most concrete expression of his enthusiasm for "managed trade," which relies on government fiat to guarantee key results. His approach, also evident in deals with South Korea, Mexico and Canada, is a striking departure from generations of U.S. trade gospel.

The deal faces widespread skepticism about China's ability to meet ambitious targets for buying $200 billion in American products over the next two years, as well as prospects for resolving compliance disputes.

Robert Lighthizer, the president's chief trade negotiator, said the deal contained important new Chinese commitments to protect American intellectual property, halt coercive technology transfers and refrain from using currency devaluation as a trade weapon.

"The agreement will work if China wants it to work," he told reporters.

But Mark Cohen, the former intellectual-property attache in the U.S. Embassy in Beijing, said "most of the positive changes" reflect measures China introduced last year.

"There is very little on systemic issues, such as improving transparency in the courts and agencies," he said in an email. "There are some tired repeats from past negotiations for thirty years."

The agreement, which does not require congressional approval, also leaves unaddressed major U.S. concerns about the impact of Chinese industrial subsidies on world markets.

Those issues will be tackled in a second phase of negotiations expected to begin in several weeks, according to Lighthizer.

Myron Brilliant, executive vice president at the U.S. Chamber of Commerce, said "it's important to recognize the importance of today's signing."

"It's a first step," he said. "But it's an important and necessary step toward a broader goal."

Senate Minority Leader Chuck Schumer, D-N.Y., criticized the deal, saying it failed to reduce the Chinese government's economic role. "The stunning lack of substance and long-term reform achieved will harm American workers and industry," he said.

The accord calms but does not end the erosion in U.S.-China relations. The Trump administration is developing new export control regulations aimed at limiting flows of sophisticated technology to China. U.S. officials also are more closely scrutinizing potential Chinese investments in the United States and the activities of visiting Chinese students and scientists.

Trump seemed at ease amid a standing-room-only audience in the East Room before he signed the agreement, putting on a performance of political improvisation.

Smiling and gesturing toward guests during an extended introduction, he joked about football with Sen. Steve Daines, R-Mont., took shots at what he called an impeachment "hoax" by House Democrats and boasted of his popularity with Alaska voters.

Along with an all-Republican lineup of Senate and House members, the audience included dozens of chief executives from manufacturers such as Boeing and Honeywell and Wall Street financiers from Citibank, JPMorgan Chase and Citadel, a prominent hedge fund.

No representatives of organized labor attended.

"There were a lot of Wall Street guys and big cheerleaders for outsourcing jobs to China," said Scott Paul of the Alliance for American Manufacturing, a union-backed group that has supported the president's approach. "I didn't see many working-class folks in that room."

At the signing, Liu read a letter from Chinese President Xi Jinping, who said the deal reflects "mutual respect" between the two countries.

In the first year of the deal, China has agreed to buy an additional $76.7 billion in U.S. goods and services. That would represent a 41% jump compared with the $187.5 billion it spent on American exports in 2017, according to the office of the U.S. trade representative.

The Chinese have agreed to dollar targets for services as well as for farm goods, energy products and manufactured goods. New sales for American farmers alone are expected to near $40 billion in the first year, up from $24 billion.

The administration is not making public all details of the agreed-upon Chinese purchases, to avoid triggering sudden commodity price increases, but it did list specific targets for 23 product categories in 2020 and 2021.

The secrecy is unusual for a U.S. trade agreement and is just the latest indication of how Trump's embrace of managed trade is breaking new ground.

"Trump has shattered orthodoxy on trade right and left since 2017," said Claude Barfield, a trade expert with the American Enterprise Institute, adding: "It leaves the U.S. open to charges of hypocrisy on state capitalism and government intervention."

The new enforcement system sets up a schedule for handling complaints by either government. If lower-level officials fail to resolve disputes, they will be elevated to more senior civil servants before reaching Lighthizer and his Chinese counterpart.

If they deadlock, the American or Chinese president ultimately can take action, including the imposition of tariffs, to penalize the other side.

"What distinguishes this mechanism from previous trade agreements is that it does not rely on independent panelists to adjudicate a dispute," said Wendy Cutler, vice president of the Asia Society and a former U.S. trade negotiator. "Rather it's up to each side to decide on its own whether the other is violating its commitments. How this will play out remains to be seen."

Trump's eagerness to shape trade flows to benefit American workers has been a central feature of his presidency. In 2018, South Korea agreed to limit its steel exports to the United States to 70% of their previous volume - good news for U.S. steelmakers but a costly change for South Korea's American customers.

Likewise, the new U.S.-Mexico-Canada Agreement contains specific wage and plant localization requirements designed to steer additional manufacturing work to the United States.

Along with the broadest use of tariffs since the 1930s, Trump established a cumbersome government process to weigh requests from companies seeking permission to continue importing the affected goods without paying the new levies.

"This administration is more open to intervening in the economy than most recent Republican administrations have been," said John Veroneau, a deputy U.S. trade chief under President George W. Bush and now a partner at the Covington & Burling law firm.

The president's decision to direct trade outcomes rather than rely on free-market competition represents a sharp break with a quarter-century of bipartisan trade policy. But it is not without precedent.

In the 1980s, when Lighthizer was a young official in the Reagan administration, he helped negotiate voluntary export limits with the Japanese.

In the 1994 Uruguay Round of trade talks, which led to the creation of the World Trade Organization, the United States and more than 100 other nations agreed to outlaw such agreements as a distortion of global trade flows and a threat to the multilateral rules-based system.

The president is opting to manage trade directly, rather than trust the vagaries of the market, in hopes of achieving one of his main goals - reducing the gap between the enormous amount that Americans buy from China and the smaller figure that Chinese customers spend on U.S. products.

In 2018, the most recent year for which full data is available, the U.S. merchandise trade deficit with China topped $419 billion, according to the Census Bureau.

Some analysts have questioned whether China has the capacity to increase its American purchases so sharply. Chinese officials publicly have sought some wiggle room, saying any new orders must be based on "market conditions."

Clete Willems, who helped negotiate the deal as a White House official, said there is ample room for China to ramp up its U.S. imports. The deal's dollar targets are less important than the changes it requires in Chinese agricultural regulations, which should lead to billions of dollars in new sales for American pork, beef and chicken, he said.

"It really is the lasting policy changes that will make a difference," said Willems, now a partner at the Akin Gump law firm.

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