A Long Road to a Limited Trade Deal, Canada’s Economy Will Decide Elections, ‘Nobel’ Ways of F


  • “Phase One” Leaves Much Undone
  • Canada Goes to the Polls
  • Nobel Prize: Smart Ways of Fighting Poverty

On March 22, 2018, the Office of the U.S. Trade Representative announced it would place sanctions on China under Section 301 of the Trade Act of 1974. Ever since, impatience for a trade deal has grown among all observers.

On October 11, 2019, after a series of fruitless negotiations, tariff escalations and retaliations, President Trump heralded “Phase One” of a trade agreement with China. But those who were hoping for a broad and durable trade deal that reduces U.S.-China tensions will continue to have their patience tested.

Expectations for the latest round of negotiations were low, and they were met. The brightest news is that the U.S. deferred a tariff rate increase from 25% to 30% on certain consumer durables scheduled for October 15, and both sides agreed that negotiations will continue.

China committed to purchase substantially more agricultural exports from the U.S., alleviating some of the pressure on domestic farmers (and helping to feed China’s population of over a billion pork- and soy-hungry people). The notional commitment of $50 billion of agricultural purchases is roughly double the quantity China imported prior to any trade negotiations, and may be more of an aspiration than a quota.

Weekly Economic Commentary - 10/18/19 - Chart 1

The “Phase One” announcement left much to be desired. It is missing:

  • Ink on paper. The announcement was verbal, and no commitments were signed.
  • The U.S. scrapped a nascent trade deal earlier this year when it found China was not willing to make commitments to allow the U.S. to ensure compliance. No progress has been made on this thorny aspect of any trade accord.
  • Progress on core issues. The Section 301 tariffs were justified on the basis of China’s state subsidies for its domestic industries, import restrictions, and indefensible joint venture requirements that led to theft of intellectual property (IP). None of these fundamental matters have been resolved.
  • Tariff reduction. The U.S. made no tariff concessions, just agreed not to raise the tariff rate on one tranche of goods. We are still in a trade regime that has levied tariffs of up to 25% on industrial, intermediate, and consumer goods since summer 2018, while the majority of U.S. exports to China are subject to retaliatory tariffs. The effects of these tariffs are still making their way through the economy.
“Disagreements between the U.S. and China have grown far beyond trade.”