AAM Letter to the Trump Administration: Phase One China Deal is Insufficient

By Matthew McMullan
Jan 14 2020 |
Official White House Photo

None of the structural problems with Chinese trade are addressed.

President Trump is preparing to sign a “Phase 1” trade agreement with the Chinese government. It’s essentially a ceasefire in a trade war that has reached an impasse.

I hope there will be a “Phase 2,” because there’s not much being brought home by this deal!

According to the Wall Street Journal, Phase 1 will include “increased purchases of U.S. goods and services, greater access for American firms to China’s banking, insurance and other financial sectors, an end to tariff threats — and a chance to reset relations between the world’s largest economies.” Reuters reports China has agreed to a series of one-off purchases over the next two years and "represent a staggering increase over recent Chinese imports of U.S. manufactured goods, raising some skepticism over how it would be achieved."

President Trump will probably get a big Sharpie out for this one anyway, but to put it bluntly – which the Alliance for American Manufacturing (AAM) does in a letter to President Trump – this isn’t even close to good enough. Writes AAM President Scott Paul:

The agreement does not level the playing field for American workers in the U.S. or global market. With nearly all the major structural issues left unresolved – including industrial subsidies, overcapacity, state-owned enterprises, predatory investment, currency manipulation and misalignment, cyber intrusions, worker rights, environmental rules, and tax policy – we urge an immediate resumption of negotiations and sustained economic pressure.

That’s right: None of that stuff is covered in Phase 1. And that’s the stuff – not Chinese market access for American insurance companies – that actually matters to American workers.

What’s more, it will do little to lower the United States’ job-killing bilateral trade deficit with China, which has continued to grow under the Trump administration. In fact, new data from the Economic Policy Institute finds the United States’ China goods trade deficit has grown annually by almost 11 percent since China joined the World Trade Organization in 2001. It was – wait for it – $419.5 billion in 2018 alone. That’s a record, by tens of billions of dollars, and will be eclipsed when 2019’s total trade figures are available in a few weeks.

It also has led to big job loss. About 3.7 million U.S. jobs have been lost because of trade deficits with China; 2.8 million of them were in manufacturing.

This is not exactly a model for economic sustainability. Years upon years of growing goods trade deficits with the world’s second largest economy ultimately drains wealth from American workers, argue the report’s authors. And, again, phase one does nothing for the structural problems:

The single most important cause of growing trade deficits with China is its history of currency manipulation and dollar misalignment that has persisted for more than two decades. And yet, the reported deal will provide extremely unfavorable terms for the United States on exchange rates, essentially locking in the current exchange rate. This deal is a step backwards on currency manipulation and misalignment.

All the more reason the Trump administration could keep the Phase 1 photo ops short, if it even holds any at all. A big trade fight with the Chinese government is worth it, provided it results in solutions to the substantial problems inherent in trading with China. But nothing of substance has yet been achieved for the American worker. Read AAM’s letter to President Trump here.