US-China Agree on a $250 Billion Trade Deal

In this photo released by Xinhua News Agency, from behind left, U.S. Commerce Secretary Wilbur Ross, Chinese Vice Premier Wang Yang and China's Commerce Minister Zhong Shan applaud as they witness officials exchange memorandum of understanding during a signing ceremony in Beijing, Wednesday, Nov. 8, 2017. U.S. and Chinese companies on Wednesday signed business deals the two sides valued at $9 billion during a visit by President Donald Trump in a tradition aimed at blunting criticism of Beijing's trade practices. (Rao Aimin/Xinhua via AP)

In this photo released by Xinhua News Agency, from behind left, U.S. Commerce Secretary Wilbur Ross, Chinese Vice Premier Wang Yang and China’s Commerce Minister Zhong Shan applaud as they witness officials exchange memorandum of understanding during a signing ceremony in Beijing, Wednesday, Nov. 8, 2017. U.S. and Chinese companies on Wednesday signed business deals the two sides valued at $9 billion during a visit by President Donald Trump in a tradition aimed at blunting criticism of Beijing’s trade practices. (Rao Aimin/Xinhua via AP)

 

One of President Trump’s campaign promises was to level the playing field in trade between the United States and China. While there are lots of voices who will argue that trade is an unalloyed good in its own right, I’m not one of them. China has been known for decades to use the power of its government to increase the markets for its products. Some of the tools are currency manipulation and outright subsidies in the form of an “export tax rebate” that the Chinese government pays manufacturers. These practices enable Chinese steel mills to dump some lines of steel products on the US market. China is probably the world’s leader in intellectual property theft and of extorting intellectual property from companies as a condition of having access to Chinese markets (for instance). All of these actions, and more, must eventually be addressed.

As a sign that China at least understands the United States position and the Chinese regime, under a Xi Jinping who has consolidated power in a way that has him being compared to a young Mao Zedong, might be amenable to modifying some of its policies to accommodate US objections, an unprecedented series of trade deals have been announced in conjunctions with President Trump’s visit to China. It started shortly after he arrived:

China and the United States signed US$9 billion of deals on Wednesday afternoon, just hours after US President Donald Trump landed in Beijing.

The two countries sealed a total of 19 deals covering bioscience, aviation and smart manufacturing, official media reported.

The signing ceremony in the Great Hall of the People was overseen by Wang Yang, China’s vice-premier in charge of economic issues, and US Commerce Secretary Wilbur Ross.

Wang, a new member of the powerful Politburo Standing Committee, told commercial representatives from both countries that the contract signing was just a “warm-up” and there would be more “good things” on Thursday.

The follow-up announcements have been impressive:

Boeing (BA.N) signed an agreement on Thursday to sell 300 planes to China Aviation Supplies Holding Company worth $37 billion at list prices – one of a number part of deals announced during U.S. President Donald Trump’s state visit to Beijing.

It is thought that some portion of this 300 plane deal includes sales announced a little earlier in the year in order to fluff the total but no one is quite sure at this point.

Today some $250 billion in trade deals were announced. While it is obvious that some of them are deals that have been in the works for a while, some of them are new and groundbreaking:

Some huge deals were announced. Among them is a 20-year $83.7 billion investment by China Energy Investment Corp in shale gas developments and chemical manufacturing projects in West Virginia, a major energy producing state that voted heavily for Trump in the 2016 election.

“The massive size of this energy undertaking and level of collaboration between our two countries is unprecedented,” West Virginia Secretary of Commerce H. Wood Thrasher said in a statement.

It marks the first major overseas investment for the newly founded China Energy, which formed from the merger of China Shenhua Group, the country’s largest coal producer and China Guodian Corp, one of China’s top five utilities.

One of the amusing things about this is watching the same people who were whining about an inevitable trade war with China a few months ago suddenly become hostile to trading with China, but Trump does that to people.

The more investment China has in the United States the better for both parties. A one-way trade pattern where the US bought Chinese goods was not a healthy one. The deals announced today mean jobs in America. Moreover, trading partners tend to become diplomatic partners. The US and China have many shared interests. Neither of us really wants a war with North Korea. Neither of us really wants a war over Chinese expansionism in the South China Sea. None of us really wants a second border war between India and China. No one really wants a trade war that will result is economic dislocation in China and what that will mean. The closer trade partnership means that China has a greater incentive to seriously negotiate on some of their truly unfair and rapacious trade practices.

There is no doubt that part of this $250 billion is blue smoke and mirrors, both sides have rolled previously negotiated deals into the package and are probably going off a valuation of memoranda of understanding rather than signed contracts. Part of this is an attempt by China to suck up to Trump by playing on his ego (to be clear, I’d rather have the Chinese eager to suck up to our guy than treating him with disdain). Having said that, China is a huge trading partner with the United States and getting along with them is more pleasant for everyone than engaging in an outright trade war. If Churchill’s dictum of ‘jaw-jaw is better than war-war’ is true then perhaps ‘trade-trade is better than sue-sue.”