President Trump last week agreed to a “phase one” trade agreement with China that cut in half some existing tariff rates on Chinese goods, canceled new tariffs that were set to take effect this past Sunday, and require China to nearly double its imports from the U.S. over the next two years.
While the deal has been hailed as good news for American farmers and factories, it was sharply criticized by New York Times columnist Paul Krugman, Goldman Sachs economist Jan Hatzius, and New York Senator Charles Schumer.
CNBC reported that Goldman was “disappointed” with the trade deal because it reduced U.S. tariffs by less than expected. Prior to the announcement of the deal, several media outlets had reported that the deal would cut in half nearly all the existing tariffs. The deal actually reduces only the most recent round of tariffs, those applied on September 1 to around $120 billion worth of goods.
“The reduction is only half as large as our baseline assumption,” Hatzius said in a note, according to CNBC. “There is still some uncertainty regarding the status of this agreement, as it appears once again that some technical and legal details are still in flux.”
Krugman, who is also a professor of economics at Princeton, claimed that the deal meant Trump had “lost” the trade war.
That's certainly how the Chinese see it. Trump tried to bully them; they hung tough; and are basically ending up where they started, buying agricultural products while selling us increasingly sophisticated manufactured goods 2/ https://t.co/akDz4MGiIz
— Paul Krugman (@paulkrugman) December 15, 2019
Krugman, however, should know better because his background is in trade economics. Reducing China’s trade surplus with the U.S. is an important achievement in itself and much larger purchases of U.S. agricultural and manufacturing goods will accomplish that. These purchases restore income to the domestic economy lost to purchases of imports from China. And there was no reason to think that a preliminary trade deal would include major concessions weakening China’s predatory industrial strategy to dominate high tech manufacturing.
Krugman is essentially criticizing a first-quarter touchdown for not ending the game.
Krugman also claims that U.S. consumers are paying the tariffs, despite the overwhelming evidence that tariffs on Chinese have not pushed up consumer prices in the U.S.
Actually US export prices to China fell more, probably bc the Chinese found it easier to find alternatives to US soybeans etc than we found alternatives to Chinese products 4/ pic.twitter.com/2wZ942EqBO
— Paul Krugman (@paulkrugman) December 15, 2019
Krugman relies on the same flawed analysis of trade data that misled Federal Reserve economists earlier this year. Although the data show that import prices on Chinese goods have not fallen, this does not indicate the tariffs are being paid by U.S. consumers. As Breitbart News first revealed, the stability of the import prices more likely indicates that U.S. importers are paying for the tariffs.
The Fed admitted this in its most recent look at who is paying for the tariffs.
“Affiliates of multinational corporations may be leaving reported import prices unchanged for accounting reasons. In doing so, the multinational would be letting higher tariffs reduce the reported profits of its U.S. operation (rather than those of its Chinese operation),” three Fed economists wrote.
Senator Chuck Schumer, the New York Democrat, claimed that the deal meant the president had “caved” on China.
Nice try. I’ve been tough on the Chinese Communist Party my entire career.
I didn’t support the TPP despite President Obama’s entreaties because it wasn’t tough enough on China.
I stay tough on China. You caved… as usual. https://t.co/DAMkaPO50D
— Chuck Schumer (@SenSchumer) December 15, 2019
Alan Tonelson, one of the fiercest critics of trade with China and the free-trade ideology that controlled American trade policy until the election of Donald Trump, disagrees:
The Phase One deal is no cave-in to China, as many have claimed. The high tariffs remaining on most products imported from China belie that description. Nor does it matter whether China’s dictators believe they’ve outwitted or intimidated Mr. Trump, and therefore that they can keep resisting his demands for improved behavior – since the towering obstacles will prevent adequately verifying even the most forthcoming Chinese promises of reform.
Instead, the deal is mainly a lost opportunity; indeed a big one. Moreover, it raises the crucial question of when the President will finally start downplaying – at least – the consequently futile efforts to negotiate a better trade and broader economic relationship between the United States and China, and start emphasizing the need to keep moving down the road toward what should be the overriding goal of decoupling.
The opportunity, however, may not be lost. As Tonelson points out, high tariffs remain on most products imported from China. China’s compliance with its agreements remains to be seen and President Trump stands ready to raise tariffs once again, even to much higher levels, if China falls short, according to senior administration officials.