Trump’s trade war was a total flop
Donald Trump, the American president from 2017 to 2021, said he knew more about trade than most economists and foreign-policy experts. “Trade wars are good, and easy to win,” Trump famously declared in 2018. He described himself as a “Tariff Man” and proved it by imposing new tariffs on hundreds of billions of dollars of U.S. imports, to be paid by the American firms buying those goods.
Trump’s dubious logic was that making imports costlier to Americans would hurt the foreign sellers and give him leverage he could use to demand concessions. His biggest target, of course, was China. Trump added new tariffs on about $450 billion worth of U.S. imports from China, while China, predictably, retaliated with similar penalties on U.S. imports. The escalation rattled financial markets in 2018 and 2019 and ultimately led to the “Phase One” trade deal between the two countries, signed on Jan. 15, 2020. Under that deal, China would sharply increase its purchases of U.S. goods as a precondition for Trump (or his successor) removing the new tariffs and getting back to normal.
New trade data for 2021 shows that China came nowhere near fulfilling its commitments in the 2020 phase one deal, with U.S. exporters ending up worse off than they would have been had Trump done nothing on trade. Analysis of trade data by Chad Bown of the Peterson Institute for International Economics found that during the first two years covered by the trade deal—2020 and 2021—China purchased just 57% of what it had committed to in the trade deal. China said it would buy at least $502 billion of U.S. goods during those two years. Yet total purchases added up to just $289 billion.
If there had been no Trump trade war, and no tariffs, U.S. exports to China would have been $119 billion more than actual levels from 2018-2021, if the U.S. share of Chinese imports had simply remained constant. That's a net loss of business for American companies. And it doesn’t include nearly $30 billion in U.S. taxpayer funds Trump doled out to farmers to compensate them for lost sales to China from 2018 through 2020.
“Two years ago, President Donald Trump signed what he called a ‘historical trade deal’ with China,” Bown wrote on the the Peterson Institute’s website. “Today the only undisputed ‘historical’ aspect of that agreement is its failure. Was the trade war worth it for U.S. exporters? The answer so far is no.”
The COVID pandemic obviously interfered with trade between the United States and China, as it did with trade between most nations. But that doesn’t appear to be the main reason China’s purchases of U.S. exports are so far below what they agreed to. Total U.S. exports of goods and services are nearly back to pre-pandemic levels, and exports of goods alone hit record levels in 2021. That reflects COVID-related distortions in the economy as a whole, with a cutback in services such as travel boosting demand for goods. U.S. exporters are producing much more than before COVID—just not for the Chinese market.
A deal that focused on four areas
The 2020 Trump deal focused on four areas where China was supposed to bulk up on American purchases and ultimately boost U.S. employment in those fields: Manufacturing, agriculture, energy and services. The shortfall in services, including travel and education, clearly suffered from COVID. But that was less than 20% of the total purchase commitment.
Agriculture involved the smallest commitment by China, and those exports rose the most of any of the four groups. But that followed a swine fever crisis in China that gutted domestic pork production and led to a surge in imports from many places. While Chinese food purchases rose following the 2020 deal, they still fell far short of what China pledged to buy from American farmers.
U.S. automotive and aircrafts exports to China are actually lower than they were in 2017, which is the baseline year for calculating China’s increased purchase commitments. That’s partly due to the shortage of semiconductors for automobiles and to the fiasco with Boeing’s 737 Max airliner, which scotched sales for months. Yet critics ripped the 2020 deal at the time of its signing for prescriptive purchase targets allowing little to no flexibility for externalities—such as a pandemic or a blockage in one particular sector. Those critics turned out to be right.
The phase one deal had no enforcement mechanism, and Trump is obviously not president any more. So there may be no consequences of China missing the deal’s targets by a wide margin. President Biden, for his part, has been cagey about his China trade policy. He has left most of the Trump tariffs on Chinese imports in place, while removing many other tariffs, such as those Trump imposed on European allies. Biden places more importance on human rights and green energy than Trump did, and it’s possible he could link the removal of tariffs to Chinese action in those areas. The one thing that’s clear from Trump’s wayward trade experiment, however, is that is makes no sense to hurt yourself in order to hurt somebody else.
Rick Newman is a columnist and author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips.