This week the newsletter comes out as we move into the holiday season. I will be taking some time off starting tomorrow, Christmas Eve, through until probably January 7. That means there will not be a newsletter on December 30 and possibly not on January 7 either. In the meantime, I hope you enjoy this last edition of 2019 and a happy holidays to all who celebrate them! See you in 2020.
You might think the week following the announcement of a successful trade deal, even if it’s only a ‘phase one’ one, would be full of much merriment and mutual backslapping. You would be wrong. Instead effort was spent trying to figure out what exactly the U.S. and China each thought had been agreed to, whether it was actually ever likely to be implemented, and whether it made much difference long term in resolving the very real differences between the two countries.
No agreement
Paul Haenle of the Carnegie-Tsinghua Center for Global Policy in Beijing warns that “two distinct, yet similarly antagonistic, narratives dominate Washington and Beijing.”
Andy Rothman of Matthews Asia says it a “disappointing deal,” tweeting “President Trump called it “amazing,” and U.S. Trade Representative Lighthizer said the China deal is “remarkable.” In my view, however, it is merely the best trade deal in the last 36 months of Chinese history“
Meanwhile, Harvard scholar and author Julian Gewirtz warns in an article in Politico that feeling any “relief may be premature” while suggesting a new war with China may be brewing: “A careful reading of the conversation inside China suggests that the next front line of the U.S.-China conflict may already be taking shape, with an ominous name: Financial war.”
Tariffs down less than 2%
Peterson Institute for International Economics trade expert Chad Bown points out that despite the hype, the U.S.-China ‘phase one’ agreement means tariffs will fall less than two percent and will still be more than six times higher than before Trump started the trade war.
‘trying to tilt the narrative’
So why a deal now? The consensus seems to be that it had everything to do with next year’s U.S. presidential election and Trump’s fears that a continuing trade war would hurt his electoral prospects.
Referencing a New York Times piece with map showing how key midwestern states are showing some of the slowest job growth, Bloomberg’s Shawn Donnan writes “this remains the most likely reason Trump and those around him shifted to a phased approach with China and were eager to avoid a further escalation.”
Adds the Wall Street Journal’s Nathaniel Taplin, it’s “hard not to conclude this deal is mostly about trying to tilt the narrative -- rather than reality -- in the president's favor ahead of US election.”
How about that steel industry relief?
Despite Trump claiming that steel tariffs he imposed almost two years ago would create jobs, there’s bad news for workers at one big producer. In the inimitable corporatese so often used for decisions ruining people’s lives, U.S. Steel has announced it “will be issuing Worker Adjustment and Retraining Notification (WARN) Act notices to approximately 1,545 employees at Great Lakes Works,” (pretty sure that means laying them off). Never worry though, these “Significant Operational Adjustments” would advance its “Best of Both” strategy, the company explained.
Meanwhile, the layoffs don’t mean that the tariffs aren’t working, said Trump’s commerce secretary Wilbur Ross. “What is happening is they are rationalizing a bit their production so that they will be more competitive in the future as we continue to go forward,” Ross said—I’m sure that’s comforting to hear for those who are out of work...
Meanwhile, the U.S. considers new tech limits
“The administration is weighing new limits on sales of chips and other components to Huawei. Commerce wants to close what it considers loopholes that have allowed companies to continue some business with Huawei. The U.S. tech industry is not pleased,” tweets Bloomberg’s Jenny Leonard.
And China is seeking new deals
Former trade negotiator Wendy Cutler tweeted on December 22, noting how China, along with Japan and South Korea have agreed to trilateral trade talks, with the “US on [the] sidelines again!!”
Notable/in depth:
The Sydney-based think tank Lowy Institute has created a time line dramatically illustrating how China has displaced the US as the trading partner for most countries.
The Chicago-based MacroPolo Institute’s database “Know the Numbers” shows just how large Chinese investment in the U.S. has already become.
A December report from law firm Hogan Lovells shows how even before the trade war began, CFIUS' cases “dramatically increased, as did the number of cases that proceeded to a second-stage investigation and the number of transactions that were abandoned on national security grounds.”