Let's make a trade deal 2: China

To evaluate the trade agreement with China that was signed last week, the fairest comparison to make is between where trade relations between the US and China stood on Inauguration Day 2017 and where they stand now.  On Inauguration Day 2017 the US had negotiated the Trans-Pacific Partnership with Australia, Chile, Japan, New Zealand, Peru, Singapore, Vietnam, and four other countries in the Pacific Rim.  It would have lowered or eliminated tariffs and other trade barriers among the partners and posed a strong counter-weight to China's ambitions.

Since that time, the US walked away from TPP and the remaining 11 members signed the agreement on their own. The US started imposing tariffs on China, which countered with its own tariffs, including significant tariffs on US agricultural products such as soybeans.  In game theory, this is known as a tit-for-tat situation, where each side replicates the moves of its opponent and there is a risk that both parties impose tremendous costs on each other.

So where are we now with last week's trade agreement with China?  The best news is that the tit-for-tat tradeoff has moved in the opposite direction; both sides have agreed to de-escalate and roll back some of the tariffs.  The not so good news is that (1) there are still a lot of tariffs and (2) businesses face uncertainty about future tariffs, which will slow investment and make sourcing decisions riskier.

The good news for American farmers is that the Chinese say they will buy more agricultural products from them.  That might mean US taxpayers will not have to send another check to farmers to offset the damage from the tariffs.  The not so good news for Brazilian farmers is that their sales, which surged when the tariff war started, will now drop off.

The good news is that the new agreement has stiffer rules for intellectual property protection in China.  The not so good news is that words on a page need not be strictly enforced by the Chinese government which has its eye on who will win the 2020 election.

Bottom line: Are we better off with this trade agreement compared to another tit-for-tat escalation?   Most definitely.  Are we better off compared to Inauguration Day 2017?  Definitely not.