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Why U.S. and China are still ‘very far away’ from ending trade war

On Friday, the Trump administration and China announced the first phase of a deal to de-escalate the trade war between the world’s two largest economies. But the agreement, positioned by the White House as a major victory, has prompted many questions, as well as bipartisan criticism. Nick Schifrin reports and talks to Mary Lovely of the Peterson Institute for International Economics.

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  • Judy Woodruff:

    As we reported, the Trump administration and China today announced phase one of a deal to de-escalate the trade war between the world's two largest economies. But the agreement has produced many questions and criticism.

    Nick Schifrin is here with that story.

  • Nick Schifrin:

    Judy, the Trump administration portrays this deal as a major victory that could lead to fundamental change by China, at little cost to the U.S.

    A senior administration official said China had agreed to structural reforms on behavior that's long concerned the U.S.: intellectual property theft, forcing U.S. companies in China to transfer their technology, and currency and foreign exchange manipulation, among others.

    And China committed over the next two years to purchase $200 billion in American agriculture, manufacturing, and energy products. In return, the U.S. dropped a new round of tariffs scheduled to take effect on Sunday, and reduced a previous round of tariffs. All told, the changes would affect more than $350 billion worth of goods.

    To talk about this, I'm joined by Mary Lovely, professor of economics at Syracuse University and senior fellow at the Peterson Institute for International Economics.

    Welcome to "NewsHour." Thanks very much.

  • Mary Lovely:

    Thank you, Nick.

  • Nick Schifrin:

    We can't read the actual deal yet, but the administration describes this as something, very significant, in fact.

    How do you assess the significance of this deal?

  • Mary Lovely:

    Well, I think, on net, it's good news in the short run for the American economy.

    We have some lifting of the tariffs. We have a deal. And the longer this went on, it seemed the more it was a drag on business confidence. GDP growth has been held back by really a major slowing down of business fixed investment.

    And so we're hoping that businesses will see this as potentially a pathway to trade peace and begin to invest again. Of course, the tariffs have kind of thrown their plans for where they're going to get their supplies and where they're going to sell.

    And so at least a little bit of certainty on that is good.

  • Nick Schifrin:

    Let's look at some of the specifics.

    The administration is claiming China's agreed to fundamental reforms, most notably, intellectual property theft, forced technology transfers. These are things the U.S. has long complained about.

    Is there any indication that China is actually willing to deliver fundamental reforms?

  • Mary Lovely:

    Well, China has been making changes in its law.

    And I think we're going to see a lot of those changes sort of packaged in this with a nice bow put on top. So, for example, intellectual property, it's been tightening both the law, the ability to police it, how those things are adjudicated.

    An important step they took last year was to create — like, we would think of it as an appellate court at the — at the central government level, because a lot of these concerns happen at the local level.

    And one of the big complaints American businesses have had is that we can't have the same guys at the provincial level, who are part owners in the business that we say is stealing our stuff, deciding whether or not that theft is actually happening.

    So now there's another level that those businesses can take these claims. So, on that, China was already doing things.

    On forced technology, they created this new foreign investment law last January, which clearly states that foreign investors need to be free of any kind of coercion on their technology. So a lot of these things were happening, at least on paper.

  • Nick Schifrin:

    The administration says that China is going to buy $40 billion to $50 billion of agricultural goods this year and next year.

    We got a statement today from a group Farmers for Free Trade questioning that, hoping that — quote — "This is not an empty political process — promise."

    Is there any indication that China can and wants to purchase that many goods from American farmers?

  • Mary Lovely:

    Well, frankly, I'm surprised that the totals are that high.

    The maximum amount of agricultural exports that we have ever sold China was in 2017. And it was about half of that. So, it was 27,000. So a little — $27 billion — I'm sorry — it was about half of what the maximum amount is here, $50 billion.

    So it's really hard to see where they're going to put them. Plus, the Chinese economy has been slowing, which would slow the demand.

  • Nick Schifrin:

    There has been political criticism today of this deal.

    We can show a tweet by top Democrat in the Senate Chuck Schumer — quote — "President Trump has sold out for a temporary and unreliable promise from China to purchase some soybeans."

    Is the Chinese promise temporary and unreliable?

  • Mary Lovely:

    Well, I think Senator Schumer believes that this trade war would have led to better outcomes. I personally do not think that is true.

    This is not the way to get change in China. We are seeing dramatic changes in the political system in China, a massive increase in the role of the state, a lot of investment going into state-owned enterprises. We're seeing political repression in many ways. Those are changes the U.S. has to deal with in a smart way.

    This blunt-force instrument wasn't getting us anywhere. It was hurting American consumers, hurting American businesses. What are we getting out of it? I'm not sure what Senator Schumer thinks about we were — we were going to go, but I didn't see this going anywhere in a positive direction.

    So I'm happy that we at least called the cease-fire today.

  • Nick Schifrin:

    So the hurdle for phase one has been high. And phase two is even bigger, right, I mean, more fundamental reforms. How far are we away from the end of the trade war?

  • Mary Lovely:

    So I think we're very far away from the end of the trade war.

    What we packed into phase two are the difficult things, industrial subsidies in particular, since this is — these subsidies are fundamental to China's development plans, to reorienting its economy toward higher-wage, higher-capital-intensive activities, and moving into the so-called emerging technologies like electronic vehicles.

    We also left aside issues having to do with market access, having a level playing ground for our tech companies, for our financial companies. Those are going to be very difficult. They're going to move into other issues, including censorship of the Internet, Chinese control of their own financial markets, and national security.

    And we know those are going to be tough.

  • Nick Schifrin:

    And so not a lot of progress before the election in the U.S., probably?

  • Mary Lovely:

    I do not think so, no.

  • Nick Schifrin:

    Mary Lovely of Syracuse University and the Peterson Institute for International Economics, thank you very much.

  • Mary Lovely:

    Thank you.

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