The Chaos Report

Yes, that is a very cynical view, as the U.S. edges toward a trade deal with China. But we think it’s also mostly accurate.

Especially since Trump’s priority seems to be getting China to buy so much more U.S. agriculture product (mostly soybeans and pork–China already owns the U.S.’s Smithfield, the world’s biggest pork producer), it’ll make our heads spin. Fortunately, he’s got Trade Representative Robert Lighthizer on this, who’s been keeping equal or more emphasis on measures to verify China will stick to any promises it makes about opening markets and respecting intellectual property, which it’s agreed to in the past, and then hasn’t done so. If the deal accomplishes that, it’ll all be worth it, it’ll be a good thing Trump has done, and there’s no need to read any further.

Trump Thursday met with China’s vice-Premier and chief trade negotiator in the Oval Office, but did not go as far as announcing a summit with China’s President Xi, as many news organizations had predicted he would. Trump’s been itching to meet with Xi at Mar-a-Lago to celebrate a trade pact (because who wouldn’t want to go to Mar-a-Lago)? But for now, he’ll have to settle for a “beautiful letter” from Xi (because world leaders know Trump really likes getting “beautiful letters”). According to China’s official news agency, in the letter:

“Xi encouraged the two sides to keep up with the spirit of mutual respect, equality and mutual benefit, and resolve issues of mutual concern so as to conclude the negotiations on the agreement text as soon as possible“.

In other words, it says a whole lot of nothing.

Trump was not much more precise, predicting a deal:

“Within the next four weeks, maybe more, maybe less, whatever it takes.”

Some so-called China experts speculate that what Xi could be talking about being ready soon is an overall framework for a U.S.-China trade deal, with the implementation process to be hammered out later. Which makes no sense to us, because this deal is all about implementation. There have been plenty of framework deals in the past, to which China has then not adhered.

While a huge increase in purchases of U.S. goods would achieve one of Trump’s biggest short-term goals, there’s a lot of long-term risk in just getting China to buy a lot more U.S. goods. Because the way that would work is the Chinese government ordering its corporate sector to buy more U.S. goods, or buy them itself.

So it’s a highly managed solution to a free-market problem. There’s nothing wrong with that in and of itself: that’s what every trade treaty is. But the dynamic here is a little different, and a lot riskier for the U.S., based on the fact that China is a Communist country and the U.S. isn’t. (And with President Xi engineering a “President for life” role for himself, some would now fairly call China a Communist Dictatorship).

What it does do is potentially give the Chinese government a huge boost in political leverage, even as they might be ceding some economic leverage. What we mean by that is since vastly expanded purchases of U.S. goods would be accomplished by government caveat rather than demand, that could be switched off much more easily than U.S. manufacturers and retailers could end their reliance on imports from China.

That’s why we say at its core Trump’s deal involves the U.S. relying on a Communist system to fix its trade problems. (That were also caused in part by a Communist system).

And let’s say in the future, the U.S. wants to examine expanded trading partnerships with other countries in Asia, as a counterbalance to China? (That was what the Trans Pacific Partnership was all about, which Trump killed because he thought it would be bad for U.S. workers—and maybe it would’ve been). Emerging countries in Asia are still more interested in doing business with the U.S. than China because they’ve been exploited by China for years. And even though in the wake of Trump abandoning TPP, China’s President Xi is coming along and offering money for development of all kinds of things, those countries largely still don’t trust him.

But now, the U.S. may soon be essentially reliant on the government of China, not actual demand, to buy its goods and better balance out the trade relationship. And should the U.S. want to go down a path again to cut China out of the equation at least in some countries in Asia, or even to challenge China’s military aggressions on behalf of traditional regional allies, in the wake of Trump’s big bilateral deal, China might just be able to say “no”.

Then again, not everybody thinks a trade deficit with China is the worst thing in the world (except when it comes to stealing technology and cheating on intellectual property). It’s been a big factor in keeping prices down and goods affordable in the U.S. Has it hurt U.S. manufacturing? Of course. Enough to balance out the benefit of cheaper goods for U.S. consumers? Is it worth potentially giving China more political sway in order to get it to buy a lot of U.S. goods it doesn’t really want? We may soon find out.