U.S. President Donald Trump has made good on his promise to “Make America Great Again”. The administration consummated a phase one deal with China setting the groundwork for economic cooperation that could potentially create the largest bilateral Pacific Rim economy ever seen on this planet.
While the mainstream media and political pundits downplay the event, a careful reading of the 96 pages of the agreement leaves you with one very important and undeniable reality. Donald Trump is a master of the art of the deal.
No president since Richard Nixon has accomplished more to open constructive bridges between the U.S. and Chinese economies. This, to borrow from “The Donald’s” land developer past, is the pouring of foundation to build out the remainder of the 21st Century.
Intellectual Property, Technology Transfer and Counterfeiting
The United States successfully raised the bar on protecting intellectual property and technology transfer between the two nations. This creates a future level playing field that has the potential to lead to a true free market system between the two largest gross domestic product nations on earth.
In page after page of chapters 1 and 2 of the agreement, the Chinese agreed to bring the standards of controlling their economy to the same level of protections as the U.S. economy. If you take the time to read the document, you will see the text with paragraphs of what the Chinese have agreed to do on the one hand followed by an American statement that the United States guarantees that existing safeguards within our economy are equal to what the Chinese agreed to do.
That was not an easy thing to accomplish particularly given the gigantic economics interests on both sides of the Pacific where business models and profits would be affected by changing the rules. I personally believe this was a brave leap of faith by the government of Chinese President Xi Xinping to agree to. Whatever else you want to say about this deal, it is a tribute to the dedication of these two men to work together over some very difficult differences.
Among the elements of these protections established the the U.S.-China Phase One deal is a commitment by both nations to ramp up the enforcement of intellectual piracy and counterfeiting. There are specific elements in the agreement to combat counterfeit products sold through e-commerce. It will change what consumers see and can buy through online shopping platforms like Amazon, eBay and Alibaba.
The commitment to fight counterfeiting extends to medicines as well. And the agreement has enforcement teeth. It empowers the takedown of counterfeit products from the eCommerce platforms. It provides for the confiscation and destruction of counterfeit goods. It goes further to include enforcement to point of seizing and destroying the means of production of pirate good as part of the trade agreement regime.
The Chinese clearly realize that the future global economy cannot be done using under the table techniques in the future. That is neither constructive or stable and they have signaled their willingness to work with the United States to move beyond such business practices. Why we are not celebrating this loudly actually tells me something about how businesses in the United States have been benefiting just as much from the counterfeit economy as the Chinese have. Chew on that thought for a moment. It is all now on a new path, the beginning of coming to an end, because of this trade agreement.
Trade Expansion and Economic Cooperation
The United States is getting a massive boost in the target balance of trade with China from this deal. The trade expansion goal incorporated into the Phase One agreement calls for an expansion of $200 billion in exports from the United States to China in the next two years. That’s a lot
And the Chinese get a lot out of it too. The trade agreement massively expands the access of the U.S. agricultural market to China. Pages upon pages of the opening up of the Chinese market to U.S. exports in the facilitation of all of the inspection and certification infrastructure required to do so a large part of the text of the agreement. There are seventeen annexes detailing specific areas of cooperation covering dairy products and infant formula, beef, breeding cattle, pork, poultry, processed meats, aquatic products, rice, dried grains, feed additives including pre-mixes and compounds, pet food and animal feed. There are sections dealing with information systems tracking food from farm to table, quotas, domestic support, agricultural biotechnology, and food safety.
These are details vital to the economic interests of heartland America. They are not something to be glossed over by the mainstream media just because it’s flyover country living to realities of life foreign to those from our urban cities
This Phase One deal also ushers in new levels of financial services access for both nations to each other. Wall Street is only beginning to absorb what this means because the deal both opens Chinese markets to American firms and American markets to Chinese ones.
The deal mandates cooperation and consultation on macroeconomic policy and exchange rate practices. This is no small thing. It sets up what is called the easing of friction between the financial infrastructures of our two economies. It ultimately leads to much greater efficiency in monetary dealings including securities, deposits, payments and other areas.
The deal creates the beginnings of a $60 trillion GDP market that dwarfs everything else on the planet. Everyone in every financial center and news bureau needs to look up from their bellybuttons and take stock of what the U.S. and China have set into motion.
The U.S.-China Phase One Trade Agreement is also significant in one more, and very big, way. It is an in your face statement by the U.S. and China to the rest of the world. The final section of the agreement declares our two countries will rely on bilateral evaluation and dispute resolution procedures to resolve future differences.
Let me break down what that means to you. It is a declaration by our two countries that, while paying lip service to the World Trade Organization’s (WTO) principles, we are bypassing the old world order processes used by the WTO when it comes to our national economic interests.
Instead of taking our issues to the world body and placing our faith in arbitration, our two nations are just going to pick up the phone and talk to each other. This is the equivalent of setting up a hotline to defuse crises directly. It’s not unlike the hotlines that exist for diffusing the threat of warfare when tensions escalate. They just route through different branches of government that oversee combine harvesters and factory robots instead of aircraft carriers, jets and tanks.
Say what you will because of how you feel about people’s personalities; but do not deny that this is an amazing piece of pragmatic statesmanship. On our side, the buck stops on the desk of Donald Trump.
President Trump not only delivered the U.S.-China Phase One Trade Agreement January 2020, the United States also ratified the United States-Mexico-Canada Agreement (USMCA) that replaces the North American Free Trade Agreement (NAFTA) in the same week. Like the U.S.-China deal, the USMCA similarly sets up direct and bilateral trade negotiations and cooperation for the northern half of the New World.
Trump, the dealmaker, pulled that one off in his first term too. It is quite ironic the 10 minutes after the U.S. Senate voted 89 to 10 to ratify the USMCA, it began proceedings for Donald John Trump‘s impeachment trial.