Let me walk you through one way to think about the trade deal and whether it is a good deal. This is only one way to think about but I do think important. Numbers are simplified but relatively accurate. Let's ask ourselves if Trump got good value to make the deal. 1/n
For our purposes, let's define value as receiving more in dollar value than giving up. Again, I'm defining everything very simply here so we can discuss all the dynamics and second order effects but stay simple for the moment. Trump administration is lowering 15% tariffs 2/n
on $110b in goods. With trade down by roughly 10% (round numbers) lets assume that means Chinese exports would now only be $100b. Cutting the 15% tariffs to 7.5%, let's assume that $100b returns to $110b. So we have a give of $10b by the Trump side. You with me so far? 3/n
Conversely Trump secured significant increases not just in agriculture exports but total exports. In 2018, total exports to China were say $180b. According to the deal, China agreed to import no less than $200b from the US. Let's assume both sides adhere to their agreement. 4/n
In this scenario, Trump administration has made a $10b concession while receiving a $20b concession from China. Now as I have emphasized, this is a simple scenario and analysis and there are other factors to consider as I remain distinctly sceptical this agreement holds. 5/n
However, I think it is instructive to quantify some of the trade offs being made in general terms to understand how each side benefits. Done.
