‘Phase One’ Marks New Chapter In Trade Between United States And China

‘Phase One’ Marks New Chapter In Trade Between United States And China

For the first time in a long time, the United States and China are striking a deal to set up better trade relations for both countries.

Top officials from China and the United States return to the negotiating table on January 15 to address the ongoing trade war between the two economic superpowers. This isn’t their first diplomatic meeting and certainly won’t be the last. But this particular juncture marks a significant departure from past conversations. According to records kept by Dizan Shira and Associates, almost every attempt at resolution in the past 18 months has resulted in either an agreement to continue talking or a moment of confrontation.

That changed on October 11, 2019, when the United States announced that they had reached some form of consensus—a deal. It’s been almost four months since then, but the agreement has been in the works ever since, nearing completion. On December 15, as representatives from both countries come together to put it into action, it’s going to represent the first significant step forward in Chinese-American trade relations since the trade war started. It’s called “Phase One.”

This deal, which is scheduled to be finalized in Washington D.C. this coming week, aims to put something of a ceasefire on the trade war that’s been going on for almost two years. According to The New York Times, more than 200 Chinese officials have received an invitation from the White House to come to D.C., including China’s Vice Premier Liu He.

While the contents of the deal have not yet been disclosed to the public, a tweet by Trump made on December 13 suggests the deal aims to increase Chinese purchases of American agricultural products, energy, and manufacturing goods, among other things. As additionally evidenced by the tweet however, this deal does not mean the end of tariffs. The U.S. Chamber of Commerce put it this way: it will stop the bleeding, but not the conflict.

Provided that Trump’s tweet accurately represents the contents of the deal, it seems like the negotiations in Washington will address some of the largest points of conflict in the war: agriculture, intellectual property, technology, and manufacturing.

Here’s where the conflict currently stands. According to Dizan Shira and Associates, as of December 19 the United States had up to $550 billion worth of tariffs placed exclusively on Chinese goods. On the other side of the coin, China had $185 billion dollars of tariffs specifically placed on goods from the United States.

At this point, some of those numbers would have been even higher due to tariff hikes scheduled to take place in December. But, for now, the increase has been put on hold during negotiation. Since the inception of the international conflict, ever-escalating tariffs have been the chief weapon used by both sides.

The war first started on March 22, 2018 when President Trump signed a memorandum to file a World Trade Organization case against China for discriminatory licensing practices. On the same day, Trump moved to set tariffs on Chinese products such as aerospace, communication technology, and machinery. For the next year and a half, tariffs continued to climb as China and the United States struggled for dominance.

Both economies have felt the effects. Numbers from the U.S. Bureau of Economic Analysis suggest that the growth of the United States’ Gross Domestic Product (GDP) has dropped for the past seven consecutive quarters, going from 6.8% to 6.0%. The National Bureau of Statistics of China note that, by contrast, the Chinese economy has been inconstantly turbulent, going from a GDP growth of 2.5% in the first quarter of 2018 to 1.1% in the fourth quarter in the same year, to finally climbing back to 2.1% in the third quarter of 2019. Chinese statistics are not always accurate, however, as the ruling Communist Party sees them as manipulatable for political purposes.

GDP measures an economy’s strength by looking at the total value of final products made by a country—a measure of how much value it’s putting out. It would be similar to measuring the health of a grocery store by adding up the value of everything on the shelves. What these numbers tell us is that the production ability of the United States’ produce has slowed—not shrunk—for the past year and a half. The net growth of the economy continues to go up. The same seems to be true of China.

This can be seen reflected by a strong stock market which continues to climb, indicating that American investing remains confident in the performance of the economy. Additionally, findings from Automatic Data Processing detail that the United States added an additional 202,000 jobs in December. By most economic indicators, the United States is doing fine for being in the midst of a trade war.

Or at least that’s what it looks like on the surface. Where the United States has really felt the pressure has been in two specific industries: agriculture and manufacturing. Again, from Trump’s tweet, these areas will most likely be the focus of Phase One.

According to the Institute for Supply Management, Manufacturing sector’s PMI (Purchasing Managers’ Index) has fallen for the past ten months, going from about 57 points in January of 2019 to 48 points in November of the same year. PMI is a monthly indicator of how manufacturing business are doing in the United States. It looks at the performance of 400 companies in 19 manufacturing industries and takes feedback from their respective leaders. That nine-point drop represents 12 months that have pushed the buttons of frontrunners in the manufacturing industry in the United States.

The story is a similar one for farmers. Reports from the U.S. Department of Agriculture show that Chinese imports of American agriculture have tanked from $19.5 billion to $9.2 billion. They’re buying a lot less of our products—near half as many as they used to. According to Forbes Magazine, that’s reflected in falling farm wages in the past four years. Since 2016, net farm income has slumped and remained beneath the 25-year average.

Both manufacturing and farming have seen sales, profits, and confidence spiral progressively downwards in the past year. Of course, the trade war can’t be credited as the only influencing factor. And clearly, the trade war has affected many other areas of commerce besides these two. But there’s no question that China has specifically targeting both of those industries. In fact, on their first round of tariffs after the beginning of the war, China’s Ministry of Finance placed a 25% tariff on 2,400 products including agricultural produce, metal, and machinery.

China’s retaliatory tariffs may weaken Trump’s voter base, striking both at the Midwest and at people working manufacturing jobs—both of which heavily contributed to Trump’s victory in 2020. It remains to be seen whether the economic tolls from the trade war will have an impact on Trump’s voter base in 2020.

But regardless of how it affects his running in the future, Trump has kept his word about taking competition in foreign markets seriously. Throughout his campaigns on the road to his election in 2016, Trump contended that unfair trade with China was weakening the American people, and that was something he intended to fix.

As Phase One continues to unfold, it looks like Trump might have a chance to level the playing field yet.

Leo Briceno is an intern at The Federalist. He is a senior at Patrick Henry College, working towards a degree in political journalism. Follow him on Twitter at @_LeoBriceno.
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