Trump Touts the Great Deal of China

By Veronique de Rugy

October 17, 2019 5 min read

A trade deal with China could finally be here! It's a good one, too, according to President Donald Trump, who said last week, "So, we just made what, I guess, is one of the biggest deals that's been made in a long time, with China." He added, "If you look at the deal, the deal is so incredible. The deal is a great deal." Then we learned that there isn't actually a real deal yet, just a tentative proposal. It's also far from the comprehensive deal that Trump once promised.

Either way, one must ask: Was it worth it?

The president is understandably eager to make the case for his tariff strategy. Yet, objectively, the deal is at best a minideal. At worst, it's a joke that pretty much fails to accomplish the goals Trump was trying to achieve. Most noticeably, it fails to get a commitment from the Chinese government to give up its protectionist and authoritarian grip on its economy. It's also unclear as to whether the deal will succeed in forcing China to stop asking foreign companies to hand over trade secrets. And China will undoubtedly continue to use its state-owned enterprises to artificially direct resources toward — and subsidize — favored industries.

Worst of all, the deal would actually reinforce these Chinese behaviors. For instance, the deal in question would require that China use its state-owned enterprises to buy $40 billion to $50 billion worth of American agricultural products annually — instead of the roughly $20 billion it bought previously. That's no victory. That's a concession China already agreed to more than two years ago. And that's pursuing the very sort of top-down, government-directed policy Trump claimed he wanted to change in the first place.

Unfortunately, thanks to a profound misunderstanding about the value of exports, the president may receive some praise for getting China to commit to buying more U.S. soybeans. While it may be very counterintuitive to most people, economists understand that exports are valuable goods that we give up in exchange for imports; exports themselves are costs, rather than benefits.

Think about it this way: When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import. Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them. Imports, and the consumption they allow, are the goal of trade — not exports. As George Mason University's Donald Boudreaux notes, "What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange."

It's hard to jump for joy at the opportunity cost of Trump's strategy. After almost four years of lavish rhetoric against China, tariffs all over the place, manufacturing slowdowns and rampant uncertainty, Trump got China to agree to very few concessions. Meanwhile, the United States will maintain those punishing tariffs on roughly $360 billion worth of imports. This means the supply chain will continue to be disrupted at the expense of American companies and consumers.

Moreover, Daniel Mitchell of the Center for Freedom and Prosperity highlights another opportunity cost of the Trump strategy that's often ignored by commentators. He writes, "Just imagine, by contrast, where we would be if Trump had joined with our allies and used the World Trade Organization to go after China's mercantilist policies. We'd be in much better shape today." If you don't buy it, look at the reduction in tariffs China agreed to for many other countries while simultaneously increasing tariffs on American exports. And take note of the many trade deals our trading partners have implemented with one another since the beginning of this trade war.

In light of all that, you can't seriously see the trade war, even one that ends up with this minideal, as a win for the United States.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. To find out more about Veronique de Rugy and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.

Photo credit: geralt at Pixabay

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