1/
Even without COVID-19, Trump's vaunted "phase one" deal with China is deeply problematic.
Read it. The legal terms of his agreement effectively urge China to become MORE – not less – STATE-DIRECTED.
My look at some new data, with @MELovely_Max
piie.com/blogs/trade-an…
Even without COVID-19, Trump's vaunted "phase one" deal with China is deeply problematic.
Read it. The legal terms of his agreement effectively urge China to become MORE – not less – STATE-DIRECTED.
My look at some new data, with @MELovely_Max
piie.com/blogs/trade-an…
2/
Trump's agreement went into effect on February 14. His deal promises $200 billion – "could be closer to $300 billion" (!!!) – of additional US exports to China by the end of 2021.
But the text of the deal is SILENT about Chinese tariffs. And THAT is a problem.
Here's why.
Trump's agreement went into effect on February 14. His deal promises $200 billion – "could be closer to $300 billion" (!!!) – of additional US exports to China by the end of 2021.
But the text of the deal is SILENT about Chinese tariffs. And THAT is a problem.
Here's why.
3/
By signing the deal, Trump agreed to allow China's TARIFFS imposed on US exporters to remain MUCH HIGHER than China's tariffs on stuff made or grown in Japan, Germany, and Brazil...
To Chinese consumers, American stuff remains A LOT more expensive.
By signing the deal, Trump agreed to allow China's TARIFFS imposed on US exporters to remain MUCH HIGHER than China's tariffs on stuff made or grown in Japan, Germany, and Brazil...
To Chinese consumers, American stuff remains A LOT more expensive.
4/
All of those remaining Chinese tariffs on US products mean Chinese PRIVATE COMPANIES have no incentive to buy from American exporters.
That rules out nearly 75% of Chinese import buyers!
All of those remaining Chinese tariffs on US products mean Chinese PRIVATE COMPANIES have no incentive to buy from American exporters.
That rules out nearly 75% of Chinese import buyers!
5/
OK, then. By structuring the deal in a way that agrees to leave China's tariffs in place, Trump is counting on China's state-owned enterprises to buy American exports instead.
But there are at least THREE (3) reasons why SOEs might not be able to pick up the slack...
OK, then. By structuring the deal in a way that agrees to leave China's tariffs in place, Trump is counting on China's state-owned enterprises to buy American exports instead.
But there are at least THREE (3) reasons why SOEs might not be able to pick up the slack...
6/
REASON 1: Some US exports are not a good fit for what China's SOEs need. It could be quality differences, customization, etc.
Energy? Soybeans? Fine!
But for manufacturing, products are often not quickly substitutable...
REASON 1: Some US exports are not a good fit for what China's SOEs need. It could be quality differences, customization, etc.
Energy? Soybeans? Fine!
But for manufacturing, products are often not quickly substitutable...
7/
REASON 2: For many products, the Chinese private sector – not its SOEs – does most of the importing.
This is also the case for a lot of manufacturing.
But even for agriculture, more than two thirds of China's imports are done by private companies, not SOEs.
REASON 2: For many products, the Chinese private sector – not its SOEs – does most of the importing.
This is also the case for a lot of manufacturing.
But even for agriculture, more than two thirds of China's imports are done by private companies, not SOEs.
8/
REASON 3: For many of the products China's SOEs **DO** import, US suppliers have CAPACITY constraints.
Eg, energy, check out Bloomberg's reporting –> bloomberg.com/news/articles/…
So even if energy and some farm products make it past Reasons 1 and 2, reason 3 may trip them up...
REASON 3: For many of the products China's SOEs **DO** import, US suppliers have CAPACITY constraints.
Eg, energy, check out Bloomberg's reporting –> bloomberg.com/news/articles/…
So even if energy and some farm products make it past Reasons 1 and 2, reason 3 may trip them up...
9/
The PROBLEM is that Trump needs **ALL THREE** – these are necessary conditions – to be there for a product to have a hope of achieving the phase one target.
The private sector is discouraged from buying US exports with all of those Chinese tariffs still in place...
The PROBLEM is that Trump needs **ALL THREE** – these are necessary conditions – to be there for a product to have a hope of achieving the phase one target.
The private sector is discouraged from buying US exports with all of those Chinese tariffs still in place...
10/
Now, for **SOME** products, Trump’s deal could turn out a success.
I.e., despite the tariffs, Beijing may coerce its SOEs to overcome market disincentives and purchase from American suppliers anyway.
But if so, this then creates ITS OWN PROBLEM for Trump.
Now, for **SOME** products, Trump’s deal could turn out a success.
I.e., despite the tariffs, Beijing may coerce its SOEs to overcome market disincentives and purchase from American suppliers anyway.
But if so, this then creates ITS OWN PROBLEM for Trump.
11/
Trump justified his costly trade war as a necessary evil to confront the Chinese economic model.
But for his trade deal to get close to the $200 billion phase one targets, it relies on China's SOEs GROWING in economic importance, not shrinking.
Trump justified his costly trade war as a necessary evil to confront the Chinese economic model.
But for his trade deal to get close to the $200 billion phase one targets, it relies on China's SOEs GROWING in economic importance, not shrinking.
12/
Odd, then, is Trump issuing his belated plea to WTO members on February 20 that they should now join HIS SIDE in the bigger, systemic trade fight, because it is CHINA'S practices that "have resulted in damage to the world trading system"
WTO doc👉🏾 docs.wto.org/dol2fe/Pages/F…
Odd, then, is Trump issuing his belated plea to WTO members on February 20 that they should now join HIS SIDE in the bigger, systemic trade fight, because it is CHINA'S practices that "have resulted in damage to the world trading system"
WTO doc👉🏾 docs.wto.org/dol2fe/Pages/F…
13/
Trump’s trade deal with China ends up massively inconsistent with what was allegedly one of the big objectives of his trade war - confronting China's SOEs.
So which is it?
ENDS/
piie.com/blogs/trade-an…
Trump’s trade deal with China ends up massively inconsistent with what was allegedly one of the big objectives of his trade war - confronting China's SOEs.
So which is it?
ENDS/
piie.com/blogs/trade-an…
