(This piece first appeared on my Patreon page.)
Last week, as Donald Trump was trying to distract attention from his impeachment trial, he was holding events touting his big trade victories. The two items for celebration were the new NAFTA, dubbed by Trump as the U.S.-Mexico-Canada Agreement, and a “phase one” trade deal with China. While these deals may be useful props for the impeachment distraction, they are unlikely to offer much to the manufacturing workers who Trump claims are at the center of his trade agenda.
The new NAFTA may lead to some modest shifts of employment in the auto industry, but its impact on the larger manufacturing sector will be invisible for all practical purposes. The China pact includes bizarre commitments of Chinese purchases of specific items. It’s not clear how these would be enforced, but if they choose to comply with the treaty and play games, there is nothing that prevents China from meeting its commitments by being an intermediary between the United States and other importers of U.S. goods.
Specifically, if China needs to buy another $50 billion of U.S. manufactured goods to meet its commitments, it could simply make $50 billion in purchases and then sell them to current U.S. importers in Japan, Korea, and elsewhere. That leads to no net gain in U.S. exports, but would comply with China’s trade commitments.
The markets have already indicated that they are not impressed with the impact of this deal on U.S. exports. The price of major farm commodities, like soy beans and wheat, remain well below their levels earlier in the decade. If there was an expectation that China’s purchases were going to substantially improve the fate of America’s farmers, then we should have seen the price of these products soaring after the outlines of the deal became known.
Trump punted on the one issue that likely would have made a substantial difference in the U.S. trade balance, the value of the dollar. After running around the country for two years denouncing China as a “world class currency manipulator,” the deal does nothing to change the exchange rate between the Chinese yuan and the dollar. (The term “manipulation” implies something which is surely not appropriate in this case. China openly manages the value of its currency, so we don’t have to catch them doing something secretly in the dark.)
Anyhow, it will take some time to see how these deals fully play out in practice, but we do have plenty of data to assess how manufacturing workers have been doing thus far under Trump. The answer for the most part is not very good.
