Thread by @Brad_Setser

There is nothing in the currency provisions of the deal, and obviously the hard issues (subsidies, procurement lists, SoEs) were punted to phase 2.

But Lighthizer also has crafted a deal that should deliver on his boss's top priority: reducing the bilateral trade deficit

1/x

The bulk of the tariffs are being kept in place (the just pay it cost of the remaining tariffs is about $70b a year), which should continue to bring US imports from China down -- a realistic forecast would put 2020 imports at ~ $400b

2/x

And the big substantive concession China made is that it promised to raise its imports even while the US keeps the bulk of its tariffs in place. If China comes close to keeping its side of the deal, US exports should go from ~ $150b (pre-tariffs) to $200b or so

3/x

Broadly speaking, Lighthizer delivered the phase 1 deal his boss wanted (possibly more than the deal he wanted) ...

It is well crafted to deliver a reduction in the bilateral deficit that Trump can celebrate on the campaign trail

4/x

You can see this in the China's monthly import data -- in December, y/y imports from the US were up (admittedly, last December was a very weak base)

5/x

And in the past few months, US exports to China have started to recover even as US imports from China trend down

6/x

I certainly think the US "overpaid" for the (projected) swing in the bilateral balance.

A lot of the oil and ag that the US will export to China would otherwise have gone to other markets, & a lot of the imports that aren't coming from China are coming from other suppliers

7/x

But Trump likely got what he wanted most out of the "deal," assuming China delivers a large part of the promised purchases in y1 and the deal doesn't break down in the next few months

8/8