Trump did his darndest this week to give out the impression the signing of the “phase one” China trade deal was a historic event and a fantastic outcome:
In a somewhat bizarre and deranged political extravaganza at the White House yesterday, US President Donald Trump signed a supposed “phase one” trade agreement with China, claiming it to be “the biggest deal there is anywhere in the world, by far.” Clearly, Trump was desperate to proclaim some kind of “victory” in the US economic war against China.
For almost an hour, Trump rambled through a long list of congratulations aimed at his closest advisers, cabinet members and dozens of the business leaders gathered at his feet. The assembly included the CEOs of some of the world’s biggest financial, industrial and technology companies, such as News Ltd, Boeing, Honeywell, Citibank, UPS, AIG, JPMorgan Chase, Dow Chemical and ConocoPhillips, Blackstone and Citadel, a prominent hedge fund.
“Most of you, I can say, you’re doing fantastically well,” Trump told the business leaders. “Thank you Mr President,” he said, as if on their behalf. He nervously noted that while the confrontation with China had triggered stock market falls—more than $US1 trillion in one day in August—since his arrival in the White House there had been “141 days where we had all-time” highs.
This was the case even though his Chinese counterpart was a lowly vice-premier, as Xi did not even bother sending his premier, much less attend the event himself:
The signing ceremony of the China-US phase-one economic and trade agreement at the East Room of the White House in Washington on Jan. 15, 2020 turned out to be a unique event. Historically, the East Room witnessed many important signing ceremonies. Notably, the signing of the Intermediate-Range Nuclear Forces Treaty was in the East Room on December 8, 1987 by US President Ronald Reagan and the Soviet leader Mikhail Gorbachev; the East Room was also the venue when President George H. W. Bush and Gorbachev signed five treaties on June 2, 1990, including the 1990 Chemical Weapons Accord.
This must be the first time that the East Room witnessed an agreement being signed by the US President and foreign dignitary who is way down in protocol. Last December, United States Trade Representative Robert Lighthizer had said that “representatives from both countries” would sign the Phase 1 trade deal agreement in the first week of January. But, evidently, President Trump insisted on signing the agreement himself, although Chinese President Xi Jinping stayed back in Beijing, preparing for a historic visit to Myanmar to “write a new chapter” in the two countries’ “millennia-old pauk-phaw friendship”.
Wednesday’s photo-op in the East Room tells a story by itself. It underscores how terribly important this trade deal has become politically for Trump, as he makes his bid for a second term in the November election.
But perhaps Xi did not show his face because team Trump had secured so many concessions from China he did not want to show his face? Yeah right. Xi wasn’t there because there isn’t much to “phase one” and it isn’t going to last anyway.
Trump and the Chinese agreed to dial down economic warfare a notch and freeze it at near current levels because neither wanted to trigger the bursting of the global debt bubble and the onset of another great recession, which in late 2019 had started to look like a real possibility.
Trump needs for the financialization bubble to pop before November like he needs a bullet to the head, and for the Chinese this whole zero-sum conflict was never their idea in the first place.
Trump, who has little difficulty selling blatant untruths with a straight face, additionally gets to pretend his trade war is starting to pay off. China is happy to allow him that calculating it could serve to freeze the war until November, after which they may no longer have to deal with him anyway.
The deal is vague and more aspirational than actual, but it may be sufficient to solve the shared short-term perception problem. The appearance of progress that hopefully lasts for 10 months is probably the absolute most the two are hoping for.
Under the deal, the Chinese are supposed to up their purchases of US commodities but it’s left unclear if the numbers given are a target or a quota. Moreover, the Chinese purchases are backloaded with two-thirds of them deferred to 2021 by which time “phase one” will likely already be dead or have been superseded by a different bargain.
It is also to the Chinese advantage that in Trump’s world the merits of a deal are based solely on whether he can claim credit for it. For example, Trump has laughably praised USMCA as a huge upgrade on NAFTA. He also went along with the fiction in 2017 that thanks to him Saudis were going to buy a fantastic $110 billion in US weapons. Only recently he has claimed the Saudis have paid the US $1 billion which has already been contradicted.
Thus even should the Chinese lag behind the purchasing targets they can, as long as the US economy is trudging along, count on Trump exaggerating the actual numbers. And should the economy tank before November Trump will be looking for scapegoats anyway, and the Chinese and the Fed will be at the top of the list.
I don’t see the numbers being thrown around ever being met in reality, but if both sides are motivated to keep up the fiction there are accounting tricks to make anything work. Just as after the EU food ban Russia mysteriously found itself importing oranges from chilly Belarus, perhaps China will soon be buying “US soybeans” grown in Brazil’s Mato Grosso.