The “No-Deal Deal” with China Turned out to be the “Never-Done Deal”

DonkeyHotey [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)]

A new report by the conservative Peterson Institute for International Economics says, “China Was Never On Path to Meet ‘Phase 1’ Purchase Commitments.”

The report confirms my claim in December, 2019, that Trump offered a fake Phase One deal because he had failed in his trade war and needed a win for his campaign.

The Phase One Deal was China’s way of waiting out Trump

Trump needed something he could bill as a victory so he could get his long-faultering trade war with China off the election debate stage, and that worked out quite well for him as we heard little talk about it from others after the “No-Deal Deal” was struck and almost none at all from Trump. It also accomplished exactly what China wanted:

China … will outlast Trump [in the trade war] because it has no election to worry about; it’s used to being long-suffering; so, China’s strategy is longterm gain over short-term pain. That is what unfolded this past week as I will lay that out for you clearly below.

No-Deal Trade Deal, Not a Done Deal!”

You see, as far back as June, 2019, I had said,

There will be no Chinese trade deal in the near future…. China will trump Trump…. The Chinese would far rather wait out Trump for a year and half than capitulate [to Trump’s trade terms] and get stuck for decades with a far worse economic situation than it has had….

Breaking China Not as Easy as Toppling Tijuana

Then in August, I wrote,

I cannot even imagine how anyone thought the US/China Trade War — or, as I call it, the Trump Trade War — was ever coming together. It could not possibly have “fallen out of place,” [as one article claimed] because it has never for one second been in place.… NO progress has been made at any point along the line! So, again, why would anyone think that is going to happen? There has not been one single PERMANENT thing Trump has asked for from China that has been agreed to that we know of. All we have seen are piecemeal temporary measures agreed to that have been poorly followed through. There has never been any reason to believe Trump when he has said a deal was imminent — not any reason based in hard facts.…The Chinese trade hope is a mirage.

When will we win? Chinese trade victory is a mirage

China let Trump have a face-saving deal that they had no attention of ever honoring because it would get Trump to back off some of his sanctions and then sit quiet about Chinese trade until the election, they hoped, took him out of office and out of the way.

Thus, I declared in that December article, that Trump just wanted to get glaring failure out of sight.

With the election year about to begin, Trump needed to close this out in a hurry. As I have reiterated throughout the past year, the best we could hope for is that Trump would come out with something he could claim is a far bigger victory than it is, and that is where we wound up this past week.

The No-deal Deal

It was clear to me the deal would never be honored. One of the biggest tattle-tales, I said, was that there was no deal. There was nothing signed. It was all hot air. I quoted Rabobank on that:

We have been promised this gift many times, and each time it has turned out to be an empty box. We need to see China publicly agree, too. We need to see the text of what it is agreeing to. And we need to see it signed, sealed, and delivered….

We didn’t get to see that. Supposedly the deal, itself, promised that each side would not publicly disclose the precise details. That, I said, was so that each side, which would certainly include Trump in an election year, would be free to say whatever they wanted about how much the deal gave them:

I have to note that the deal Trump is now trumpeting about is something we are told we are not allowed to read because purportedly China has stipulated that neither side can release any part of the deal that is actually in writing. We don’t know how much is in writing and how much is just a hand-shake because we are not allowed to see the actual deal, but that probably doesn’t matter because no one has signed on to it yet anyway.

In fact, while Trump was boasting about how much China had agreed to buy from the US, China reported to its own populace that it hadn’t agreed to any specific amounts of anything, and now we know that is apparently true. It certainly hasn’t acted as if it agreed to any specific amounts, and no one is holding them accountable to any specific amounts.

The genius of the No-Deal is that no one gets to see it. China supposedly insisted on this, but I think both sides wanted that so they can make of this pact whatever they want to make of it with their own public. What we the public get, instead of the text of an actual deal, is the … official statement by the officials patting themselves on the back for a great deal.

US officials patted their boss on the back for a great deal just as the election season was about to get seriously under way. The administration’s self-congratulatory statement was…

The United States and China have reached an historic and enforceable agreement on a Phase One trade deal that requires … [blah, blah, blah … all unseen so unverifiable and not worth mentioning here].

Office of the United States Trade Representative

And then here was the important part, which the administration chose to highlight in boldface in its report of the deal:

President Trump has focused on concluding a Phase One agreement that achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S.-China trade relationship. This unprecedented agreement accomplishes those very significant goals and would not have been possible without the President’s strong leadership.

Gotta love that last line. The most important thing to Trump was always the opportunity to brag about how great Trump’s achievements were. So, I referred to it as the

Phase-One-Praise-One deal [or the] praise the Donald Deal.

The other tattle-tale that this was a no-deal deal and not the big deal that was being promised was that the numbers Team Trump claimed the deal promised were way too big. They were completely ridiculous and, therefore, undeliverable:

President Trump’s expressed understanding is that China will be leaping from its original peak pork-and-beans level of about $24 billion worth of agricultural purchases up to $50 billion, but China’s own statement essentially said, “We’ll do the best we can based on market needs.” That leaves a Pacific-sized expanse between what China claims and what the Trump Admin. claims:

To actually fulfill what Trump claimed the deal would accomplish, Bloomberg noted …

would require a huge jump in China’s imports, potentially stretching its capacity to absorb the products…. The $50 billion figure offers Trump an attention-grabbing number to drive up enthusiasm for the deal in rural America. That’s a key political constituency for the president as he campaigns for re-election. It also helps him to defend a partial deal that leaves out many of the objectives he set when he initially launched the trade dispute….Chinese officials said their imports would increase by “a notable margin,” but refused to be more specific…. Lighthizer suggested that the higher figure is aspirational.

I love a deal with “aspirations goals.” So definitive. So achievable. Let’s promise the moon, or let’s just say they promised the moon. Along those lines, Bloomberg also noted,

Chinese officials repeatedly didn’t answer questions on the exact size of their commitment.

Of course they’d didn’t because another part of the deal that I said proved it was no deal was its vagueness:

Xi’s negotiators agreed vaguely to buy more agricultural goods from the US within constraints of what the market will bear.

There are entire container-shiploads of squirmy wiggle room in “within constraints of what the market will bear.”

How appropriate, I wrote in December, 2019,

…that we have a No-Deal Deal at the same time that we have QE is that is “Not QE.” Such are the times we live in — times of denial, times of pretend.

The No-deal Deal, I noted, gave Trump an equal shipload of wiggle room,

Since no one can see the deal by agreement with China, no one knows if it’s a real deal or not. That works to Trump’s advantage, should he find as he runs his talking points up the flag pole, that his base doesn’t like what they are hearing. He can, then, claim there is much more to this deal than what he has said so far, or he can claim China reneged so the deal is off. Who will be the wiser, except China, since we have no proof of anything…? So, Trump doesn’t have to worry about that. He can just say it was an outstanding deal for both nations, but China failed to follow through.

I asked a simple question to consider when considering whether the amounts Team Trump was claiming they got out of China were true:

Can anyone seriously believe China will more than double the pre-[trade]war figure when it took them more than a decade during their best years to get to that level [of trade], much less that they will double that record in one year…? It’s not even remotely doable…: $50 billion is more than the U.S. exports in corn, soy, beef and pork to all the nations in the world. Looking at this promise from the US side, then, how are we even going to come up with that much in agricultural goods to export to China?

But what do such details matter to a snake-oil salesman? It’s the old idea of tell a big enough lie so people will believe it. Make it worth your while.

Now we have an independent report that says all my criticism was right

Is it any surprise that we now have a report two years later from the Peterson Institute that China never even attempted to live up to the deal, and the problem, according to the new report cannot simply be blamed on COVID:

China’s failure to meet the import targets agreed to under the “phase one” trade agreement with the United States signed in January 2020 can’t be blamed wholly on the global COVID-19 pandemic and supply-chain disruptions, according to a new report issued by the Peterson Institute for International Economics (PIIE).

China Was Never On Path to Meet “Phase 1” Purchase Commitments

And why was that?

The failure reflects unrealistic import targets that China was never actually on track to meet, while some degree of bad faith on both sides of the deal also came into play, the report states.

Surprise, surprise! All the vagueness allowed a shipload of room for bad faith as to what was actually promised.

In the end, China ended up purchasing only 57 percent of the U.S. exports it had agreed to buy

Which was exactly the amount it had always been purchasing, rather than double the amount, which Trump said they promised. As I had claimed, when the No-Deal Deal wasn’t signed or put on paper, no one anywhere had proof of any figures China had agreed to, and China’s word certainly didn’t align with Trump’s claim. “Bad faith.”

The report does pin some of the failure on COVID and all the shutdowns, which initially would have had a huge impact, but it notes that nothing improved after economic reopening from the lockdowns. That is to say, those things provide some room to claim China might have done more, had COVID not happened, but not that China would have done more.

For all the optimism, the agreement had the misfortune of being signed just two months before the global pandemic really took hold, causing lockdowns and staff shortages worldwide…. The economic recession that beset the United States in April 2020 and May 2020 hurt gross domestic product growth for the year, and in the first of those two months, global trade briefly broke down, according to the report…. Having said all of that, the report shows abundant data that militate against trying to blame China’s import shortfall on the pandemic…. “Global goods trade rebounded in the second half of 2020 and boomed in 2021, in part because COVID-19 shifted consumer demand toward goods and away from services….” Some price inflation might actually have helped China meet purchase goals, given that the “phase one” agreement’s targets are stated in value (a dollar amount) rather than volume of goods, the report states. Hence, the failure to meet “phase one” targets can’t simply be dismissed as an expected and perhaps inevitable consequence of the pandemic…. It should have been clear as far back as 2020 that China wouldn’t reach the import targets established under the deal, given the rate of its imports of U.S. goods…. “The Biden administration was not to blame, as China was never on pace to meet its purchase commitments,” the report reads.

Of course it wasn’t. That’s what I pointed out all along, and note that the conservative Peterson Institute is not the kind or organization likely to give Biden a free pass. China ended up buying exactly the same amount of goods it had been buying before the Trump Trade War.

China ended up buying none of [the] extra … U.S. exports it had promised to purchase,” the report reads…. China has just not lived up to its commitments. Its non-market economic system is completely incompatible with WTO norms of transparency, openness, and market orientation grounded in the rule of law…. These are the norms and values that are supposed to underpin the multinational trading system and the WTO. And clearly, China’s economic system is incompatible with those sets of norms.

That outcome was clear right from the get-go, but what can you expect from the No-deal Deal made with a wheeler-dealer who wanted to claim a major victory going into his election?

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Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce, told Reuters on Feb. 9 that closer collaboration between the United States and allies, with a view to presenting a strong united front against Beijing over its failure to follow fair and transparent trade practices, is one of a number of options on the table for the Biden administration.

And that was exactly the strategy I said Trump should have used in his negotiations at the time. Instead of launching simultaneous trade wars with the entire world, he should have launched a single trade war with China and gotten the all the rest of our allies to gang up against the biggest trade bully in the cell block, which would have been good for the whole world and would have knocked China down to size; but you can’t get others to cooperate with you on something like that when they are already in wars of their own with you.

My recommended strategy was beat up the biggest guy in the cell block, and wipe that smarmy look off his face, and others will fall in line once they see what you did to him. When the US put tariffs on China, China simply turned to the rest of the world and did more trade with them to get all that it needed and to make up sales lost with the US, and because the rest of the world was in trade wars with Trump, they gladly helped China out with that!

Meanwhile, the only thing we actually got out of the deal was the following blarney from Lunatic Larry about the deal worked out by his partner in crime, Lighthead Lighthizer, NONE of which happened, including all the detailed follow-through Larry assured us would be there, especially his promise that Phase Two would start “right away” and, again, “Phase Two begins immediately” after this “tremendous accomplishment”: (That is ALL we got out of the deal — a chance to say in the election year that Trump had a tremendous accomplishment, made easy because the deal promised China would disclose no real specifics.)

Of course, Laughable Larry’s predictable blathering got the market rally Trump wanted by feeding investors what they always want in time for Christmas because the market only cares that it gets whatever feeds its sentiment, not whether a single word of it makes any sense or is true … because clearly NOTHING about this deal ever made any sense and no claim about it was true … but that’s why you have me ; )

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