The details are still a bit murky, but the new trade deal looks like a big win for China. And that means it’s a win for Americans (relative to continuing the trade war), but a loss for the Trump administration:

As described, the agreement does not address American concerns about China’s industrial subsidies and state-owned enterprises. There were no details on the currency provisions in the pact or how China will go about ensuring protections of American intellectual property. And there information about China’s plans to roll back its tariffs was murky.

I expected the Trump administration to lose, but not this badly. The US claimed they wanted China to become a more free-market economy, but then demanded that their government step in and manage trade with the US, committing to buy an increased amount of US agricultural products. That’s the opposite of free trade.

Fortunately, it doesn’t make much difference. Commodities like soybeans are “fungible”, meaning there’s not much difference between the soybeans we export and those exported by Brazil. Agricultural commodities are traded in global markets, and thus re-shuffling who sends what to which countries won’t have much impact on overall farm prices, unless we can convince the Chinese to get much fatter, by eating more food.

Currency manipulation is a non-issue, as China’s current account is nearly balanced and it does not meet the Treasury Department’s official criteria for currency manipulation.

China always promises to crack down on intellectual property rights, but there’s not much the central government can do to control the actions of 1.4 billion people. Fortunately, China is taking IP protection a bit more seriously in recent years, mostly because it now has lots of the world’s leading tech firms.

I find it amusing that Trump trumpets the farm sales as his big win. Thus his trade war “win” is to remove a problem that he himself created through an ill-advised trade war. But it won’t entirely fix the farm problem, as the continuation of US tariffs (at a slightly lower level) will continue to depress US exports, as will his reckless fiscal policies.

We’ve been told that we needed a tough guy like Trump to “stand up to China”, and now Trump’s caved into China like a dog backing off with its tail between its legs. When you combine this with the new Nafta, it’s clear that Trump has abandoned Steve Bannon’s vision of a muscular new industrial policy, and basically accepted that globalization is here to stay. That’s good!

Here’s Bloomberg:

Washington began this trade war with no clear idea of its objectives, how it would achieve them, or what sacrifices it was prepared to make. It’s now on the brink of a ceasefire that allows it to quit the field with a few shreds of dignity intact. It would have been far better had the battle never been joined.

That point deserves some fleshing out. Trump began with the (false) idea that China was taking advantage of the US, and that this explained our trade deficit. In fact, our deficit is caused by a shortfall of domestic saving, which Trump had no interest in addressing, and indeed has made even worse.

Trump needed a lot of foreign policy experts to help him deal with China, but these experts had a very different agenda. They wanted to weaken China, who they see as a threat to US hegemony. And this creates a dilemma. If we succeed in convincing China to become a freer and more open economy, then China will become much richer and more powerful. But our foreign policy establishment doesn’t want China to become richer and more powerful. It’s pretty hard to negotiate effectively if you don’t know what you want. So we ask for meaningless gestures like state-mandated agricultural purchases, instead of an open Chinese economy.

Of course, we could stop trading with China, but that would immediately put the US into recession and lead to a Democratic president in 2020. So that’s not going to happen.

Trump is selling this as just “phase one”. He’d like to convince people that he’ll win a much better deal after the election. He won’t. This is as good as it gets. The phase one rhetoric is just a fig leaf to cover up the fact that Trump was beaten by the Chinese.

I hope all you commenters who claim I “just don’t understand” that we need right-wing populist nationalists to help the workingman in Ohio will now just shut up. Your man let you down, and it’s time to admit that your vision of mercantilism was always a chimera. If you want more blue-collar jobs than reduce the trade deficit by reducing the budget deficit, as I have been recommending. Your guy is making the trade deficit worse.

PS. As new information comes out, I expect the deal to look even weaker, even more porous. This deal is intended for domestic consumption, not fixing actual economic problems. Recall when Trump asked Ukraine to investigate Biden. All he really asked for was a public declaration (on CNN News) that they would investigate Biden. Here he just seems to want China to say they’ll behave better in the future, without any reliable enforcement mechanism.