Peace rather than more conflict is finally in the cards, at least temporarily, for the United States-China economic relationship. After many twists and turns, the United States and China are expected to sign a trade deal on Wednesday and have agreed to resume a regular dialogue about their differences. The phase-one agreement leaves many issues unresolved, so tensions between the two countries may continue. But a cease-fire and dialogue are certainly preferable to the alternative — a further escalation of trade and economic hostilities between the world’s two largest economies.
What has the deal accomplished? It will bring some significant changes but comes with a big price tag for the American economy. The long-term effects might end up favoring China. First, let’s give credit where it is due. President Trump’s tough line on China has shaken loose more apparent concessions from the Chinese than previous administrations managed. The previous, longstanding policy of constructive engagement, using persuasion couched in the language of mutual benefits, bore little fruit.
As part of the deal, China has agreed to increase its purchases of products from the United States. This is largely a symbolic issue meant to mollify President Trump, since this will not, by itself, affect the United States trade deficit with China in a durable way. Such deficits are more of a reflection of other policies that influence a country’s consumption and output.