The pain of President Trump’s trade war with China may soon be over, but American businesses and farmers are left wondering whether it was worth the trouble.
Negotiations with the Chinese are continuing, and Mr. Trump could still secure more concessions to balance out a trading relationship he has long criticized as unfair. But details of the emerging deal paint a familiar picture of Beijing making vague promises to change its economic practices that could be easy to delay and difficult to enforce.
While previous administrations have tried to cajole China into changing its behavior, Mr. Trump has used a blunt instrument: deploying punishing tariffs to win concessions. That has given the United States a remarkable amount of leverage, but it has also taken a heavy toll on farmers, automakers, manufacturers and other businesses with exposure to China. Those businesses have faced higher costs, reduced access to the Chinese market and retaliation, including tariffs on American goods. Some farmers have permanently lost customers and contracts in China, while the profits — and share prices — of multinational businesses have taken a significant hit.
Now, with the United States poised to roll back most of its tariffs as the two countries close in on a final agreement, the question is whether the costs of Mr. Trump’s deal-making outweigh the benefits.
“Can we go back to the pretariff days? Yes, we can,” said Derek Scissors, a resident scholar at the American Enterprise Institute. “Have we moved the bar since the beginning of the Trump administration? The answer is no.”
Over the past several weeks, American and Chinese negotiators have been in almost constant contact over phone and video conferencing to hammer out the terms of a deal. China has agreed to drop the retaliatory tariffs it imposed to counter Mr. Trump’s levies on $250 billion worth of Chinese goods and to provide greater access to its markets for cars, beef, chemicals and other products.
Beijing has pledged to have Chinese companies purchase hundreds of billions of dollars worth of liquefied natural gas, soybeans and other goods over a number of years to appease Mr. Trump’s focus on the bilateral trade deficit. China is also rewriting some of its laws and regulations to better protect foreign intellectual property, ban the forced transfer of foreign technology to Chinese business partners and codify equal treatment of foreign companies.
In return, China wants Mr. Trump to drop all the tariffs he imposed over the past year, which have begun to hamper the Chinese economy. While any final decision will fall to the president, people familiar with the negotiations say the United States is willing to scrap tariffs on at least $200 billion worth of goods, if not all.
The tariff détente would help large and small companies that have struggled under the weight of 10 percent and 25 percent levies, but the trade war has already come at a cost. Several recent studies have shown modest but growing damage to the United States economy from the trade war, including the retaliatory tariffs other countries have leveled against American exports.
And contrary to Mr. Trump’s claim that the Chinese are paying the tariffs, several studies show they are being passed on to American consumers in the form of higher prices on imported goods.
Mr. Trump’s tariffs “were almost completely passed through into U.S. domestic prices,” the economists Mary Amiti of the Federal Reserve Bank of New York, Stephen J. Redding of Princeton University and David Weinstein of Columbia University wrote in a paper released late last week, “so that the entire incidence of the tariffs fell on domestic consumers and importers up to now, with no impact so far on the prices received by foreign exporters.”
The economists concluded that tariffs had already reduced incomes in the United States by nearly $7 billion, and that the total cost to the economy had been even larger, because of price increases. By the end of last year, they estimate, the tariffs were costing consumers and importers a total of nearly $4.5 billion a month.
That effect is relatively small for a $20.5 trillion economy, but the researchers expect it to expand if the tariffs persist, as companies reroute supply chains to avoid tariffs in the United States and abroad.
Researchers from the Federal Reserve Bank of San Francisco estimated last week that Mr. Trump’s tariffs on imports from China have raised consumer price inflation by 0.1 percent in the United States. Researchers from the New York Fed estimate that the China tariffs — along with tariffs on steel, aluminum, washing machines and solar panels — boosted consumer prices by about a third of a percent last year.
Another study, from the researchers Ned Hill and Fran Stewart at Ohio State University, found that the economic drag from tariffs had at least partially offset stimulus from Mr. Trump’s signature tax cuts. Rising trade uncertainty has chilled business investment growth: The researchers surveyed nearly 500 Ohio manufacturers and found that two-thirds of them said they were hurt by tariffs.
A survey from economists at the Federal Reserve Bank of Atlanta, the University of Chicago and Stanford University in January concluded that tariffs reduced business investment in the United States by 1.2 percent — or $32.5 billion — in 2018.
That price might be worth it, business groups and China analysts say, if the administration makes a deal that substantively transforms Chinese industrial policy and gives American companies fair and reciprocal access to the Chinese market.
“We oppose the use of tariffs, period,” said Myron Brilliant, the executive vice president and head of international affairs at the U.S. Chamber of Commerce. “But we are at the same time supportive of this administration trying to get a deal that is not just consequential for today but will have lasting impact on the relationship and put the U.S.-China relationship on a better track.”
“Absent a deal, I think everyone loses,” he added.
But the deal under discussion, which could be wrapped up by late March, appears likely to fall short of the high expectations the Trump administration initially set and the significant changes critics say are needed to counter years of unfair economic behavior by China.
China promised to make its economy more market-oriented when it joined the World Trade Organization in 2001, and it has reiterated those promises many times since then, including in 2013.
Yet today the state has an even heavier hand in the economy than a decade ago, said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics. The ruling Communist Party can influence private companies at will, and foreign companies face a variety of forms of discrimination that advantage Chinese firms.
Now, China is offering changes to its laws, including a significant rewrite of a law governing foreign investment. This is a necessary first step, Mr. Lardy said, but rewriting the laws may not do much good when the party is fundamentally above the law.
“Talking about rule of law and protecting property rights is one thing, but actually following through on it is a very difficult thing for a system where the party has been so deeply embedded for a long time and the rule of law is secondary,” Mr. Lardy said.
China experts say certain provisions of the deal, including the administration’s plan for airing disputes through an extensive series of meetings at various levels of government, sound similar to past economic dialogues during the administrations of George W. Bush and Barack Obama.
“We won’t know until we see what the deal looks like, but it’s feeling eerily familiar,” said Scott Kennedy, a China scholar at the Center for Strategic and International Studies.
Critics of the evolving deal have also said it suffers from a lack of specificity on certain provisions that China uses to systematically block foreign companies. For example, China is pledging not to discriminate against foreign companies when it sets new standards for technological equipment. And it is promising not to selectively use its antitrust laws against foreign companies or subsidize certain high-tech industries. But the deal under discussion does not provide a specific list of subsidies that would be curtailed or ended, so the Chinese may just be able to rebrand them and evade the letter of the agreement.
Getting China to commit to changes on these issues would be a herculean task for any administration, Mr. Kennedy said. But the effort has been made harder by Mr. Trump’s rush for a deal and his desire to act unilaterally rather than with other countries.
“It’s difficult no matter what,” Mr. Kennedy said. “We tried multilateralism and patient integration, and that didn’t go smoothly either.”