Trump's trade deal with China looks designed to implode

President Donald Trump holds the signed a trade agreement with Chinese Vice Premier Liu He, in the East Room of the White House, Wednesday, Jan. 15, 2020, in Washington

AP

President Donald Trump holds the signed a trade agreement with Chinese Vice Premier Liu He, in the East Room of the White House, Wednesday, Jan. 15, 2020, in Washington

  • Trump's trade deal with China is so weak it looks like it's designed to implode.
  • The language in the deal leaves a lot of room for argument, it's not hard to leave and, the enforcement mechanism turns every dispute into a game of political football.
  • Plus, no one in Washington owns this deal except for the White House and a few Republicans. So when the political winds change, this deal might blow away with them.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider's homepage for more stories.

Trump's Phase 1 trade deal with China looks designed to implode. 

It's been two years of antagonistic negotiations during which US-China relations worsened to a point unseen in generations, and the deal that process produced - the deal Trump signed on Wednesday - is extremely a fragile. Its subjective language, enforcement mechanism and adjudication process make it easy to leave.

And, since Democrats aren't on board with the deal, there's little incentive to stay if the political winds change. 

Let's talk about the language in this deal first.

There are all kinds of squishy words to fight about in this document. Parties are supposed to ensure "expeditious enforcement of any fine, penalty, payment of monetary damages, injunction, or other remedy for a violation of an intellectual property right ordered in a final judgment by its own court." But what "expeditious" actually means remains unclear.

Here's another extremely fungible passage:

"China shall require the administrative authorities to transfer a case for criminal enforcement, if, under an objective standard, there is 'reasonable suspicion' based on articulately facts that a criminal violation of an intellectual property right has occurred. "

It's 2020, if there's anything world knows now it's that it's not hard to argue about "articulable facts," and when politics are involved any "objective standard" tends to go out the window. And politics will be involved, because the enforcement mechanism is inherently political. We'll tackle that next.

This deal has an enforcement agreement unlike any other, according to Chad Bown, a trade expert at the Peterson Institute. In a call following the its signing, he told reporters that it was odd that the deal makes no mention of the word "tariff." That is to say, it lacks any specifics for how to punish a party if it transgresses in this deal - there are no guidelines on what is appropriate.

Even stranger, according to Bown, is that this deal does not take disputes to an overarching enforcement body. Enforcement is left to the office of the US Trade Representative, which then undertakes an up to 90-day adjudication and discussion process with its Chinese counterparts to try to resolve the conflict.

After the enforcement process is through, if the company that feels it has been wronged is not satisfied with the remedies presented by the offender its home country agrees, the country can "in good faith" put tariffs on the offending country. The offending country, then, is not supposed to retaliate.

However, and this is a big however: If the country hit by those new tariffs doesn't agree the import taxes were put on "in good faith," it has no recourse but to leave the deal, a senior administration official told reporters in a call following the deal's signing.

That's it. 

The senior official said the US is confident that China's broader interest will keep it in the agreement. They also said that the enforcement mechanism was designed to keep disputes out of the World Trade Organization and to avoid counter retaliation. The problem is, one of the reasons countries accept enforcement action from the WTO is because it's such a bother to leave given the multitude of countries involved. This, not so much.

By putting judgement and enforcement in the hands of the two countries instead of a third party (like the WTO), Trump has ensured that every single dispute is a game of political football between the two nations. Each one of those disputes will become a pressure point that could move one country to leave the deal.

Not my president, not my deal

It's clear the administration took pains to make sure this deal would not have to be signed into law. You can tell, according to Bown, because throughout the document it notes that the US is already in compliance with measure after measure, meaning that the US won't have to change its laws. No laws changing, no need for Congressional involvement.

That's Trump's way of bypassing Speaker Nancy Pelosi in the House and avoiding Democrats in general. You'll note none were at the signing ceremony. They have no ownership over this. Say a Democrat wins the presidency in 2020. Then that lack of ownership will be a big problem.

At that point, if I'm China, well then I'm out - especially considering the fact that Congress didn't enshrine this deal into law and my new friends in Washington don't care about its survival.

Trump's avoidance of Congress is a way of avoiding having a discussion about how trade deals should be done at all too. Wednesday's signing ceremony was attended by White House officials, Republicans, the Chinese delegation, big corporations and Trump's friends and family. That's who had a seat at the table while this deal was being done.

Want to talk about The Swamp? Few people are swampier than billionaire casino mogul Sheldon Adelson, one of the first people Trump thanked for making this deal happen. His company, Las Vegas Sands, has been fined for violating the Foreign Corrupt Practices Act in Macau and China by paying bribes. 

The fact that people like Adelson and Trump's other friends in corporate America were given the royal treatment is likely to send a message to President Xi Jinping, according to Bill Bishop, writer of China-focused newsletter Sinocism. It reeks of corruption and the corrosion of the rule of law in our system.

That same reek of corruption won't be lost on Democrats either, because it's been a key part of the party's discussion about how to do deal trade deals going forward. Senator Elizabeth Warren (D-MA) has been most vocal about allowing a variety of Americans interests at the trade negotiating table - small business people, climate activists, labor unions. That lack of variety, she and others argue, is part of what hollowed out American manufacturing and sent jobs overseas. It's part of why we're in this mess in the first place.

Others agree. At the Democratic debate Tuesday night, Tom Steyer, the billionaire businessman, said the US should never sign a trade deal without considering the climate (a word that does not appear in this deal). And in a statement following the deal's signing, House Speaker Nancy Pelosi pointed out that this deal does nothing for human rights in China.

So if the Chinese don't blow this deal up, it's very likely the Democrats will. It won't be hard. You could knock it over with a feather.

This is an opinion column. The thoughts expressed are those of the author(s).

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