Why has President Trump aimed for these goods? The election swing states of Michigan, Ohio, Pennsylvania, parts of the so-called ‘Rust Belt’, are important parts of President Trump’s re-election campaign and are currently under threat of a recession in the area; Trump himself said that under him, the factories are alive once more with his administration overseeing an additional half a million jobs in the manufacturing sector. Under the trade war, however, we’ve seen a decline in the growth of new manufacturing jobs, showing a weakening sector. In states where Trump polls well, manufacturing tends to be around 10%-18% of jobs, whereas Democratic supporting states tend to be around half of that (Golle and Dorning, 2019).

Farmers have done poorly under President Trump; with restrictions on illegal labour raising the costs of production, the trade war leading to reduced Chinese buying of soy and meat, as well as a change in law that allows oil companies to not use U.S. corn to produce biofuel leading to further reduction in corn demand, U.S. farmers are simply suffering and farm bankruptcies are ‘sharply up’ this year (Morris, 2019).

Despite this, there is the fact that farmers make up a strong portion of Trumps’ support in the heartland of America, and some polls show that over three-quarters of farmers will continue to support Trump, with two-thirds believing the trade war will end well, and with the Trump administration providing $28 billion in payments to farmers to compensate (Morris, 2019).The trade deal offers everything that farmers want to sell; they win in this deal.

Regarding energy goods, the U.S. became a net exporter of oil since September 2019, and is predicted to become a net trade surplus of hundreds of billions of dollars for the United States (Meyer, 2019). Not only does this allow the U.S. to have greater demand for their oil, leading to slightly higher prices, but it will allow them some ability to fight to control oil exports to China; currently Iran, Russia, and OPEC are doing so, and this will force the U.S. a better position in this competition.

In turn, not only will this reduce the U.S. trade deficit to China (and in general), it will weaken the positions of the U.S. geopolitical rivals of Russia and Iran, but a lowered trade deficit is linked to better employment, economic growth, and stability.

Furthermore, global demand for dollars can keep inflation away (while the Trump administration enjoys greater public spending), and will appreciate the dollar value; which makes imports to the U.S. cheaper (meaning the consumers will enjoy greater ability to consume foreign products), but will in turn makes exports more expensive (which defeats the long-term plan of forcing sales abroad; to defeat this, promises made in quantity (e.g. 2 million barrels of oil) would ignore the appreciation of the currency reducing the total exports in real quantities. Monetarist economists would, however, believe that this could be held off with quantitive easing (Trump is quite happy to use this for public spending) or increasing interest rates to reduce spending and inflation (going against the current Fed plan of lowering rates, as this could lead to velocity of money reducing and then an economic recession as people keep their money in their pockets).

There has been something of a hiccup in this plan, however. The coronavirus, which has seen a shut-down across the Chinese economy since Chinese New Year, has led to doubts about whether China can fulfil its’ promises; however, the trade deal has a clause that allows China and the U.S. to consult in the case of a natural disaster or other unforeseeable event (Wei, 2020; Bloomberg, 2020). We have seen that China has slashed oil imports by 20% as the countries’ economy has stalled from the coronavirus; at the same time they are expected to buy U.S. goods (Cho, Smith, and Bloomsberg, 2020). During these trying times, the U.S. is asking China to double their imports from the U.S. (in 2017, China imported around $188 billion from the U.S. directly); do keep in mind that China imports $1.84 trillion each year globally, however, so we may simply see a shifting in imports from other partners to the U.S. (Devonshire-Ellis, 2020).

Due to the growing doubts that China can afford these purchases, we have seen that China has announced that it will, on the 14th February 2020, lower tariffs on $75 billion U.S. exports. Some goods from 10% to 5%, some from 5% to 2.5%. This does show that even during this international crisis, Chinese leadership continues to try and implement this phase one trade deal (Wei, 2020).

However, with the Chinese stock market opening with an 8% loss at the beginning of February 2020, and many economists warning that even the massive bond buyback from the Chinese banks to stimulate the economy likely not working, there are questions if the Chinese economy can really support purchasing so many U.S. goods. There are even threats of a major long-term economic shock from the coronavirus as businesses simply refuse to work, and time lost is money lost (Cox, 2020). Consumer price inflation has always been an issue in recent China; We have also seen massive consumer price inflation of 5.4% in January, with pork prices in China having risen by 116% since last year, and vegetables 17% inflated; due to hoarding food in preparation for quarantine, as well as the pre-mentioned supply shocks, CPI is expected to remain above 4%. We have also seen China fine companies who price-gouge during this time, as well as platforms such as Alibaba and JD.com being ordered to remain vigilant for such behaviour at this time (He, 2020).

Regarding the consultation; as of 3rd February 2020, China has not requested a consultation according to U.S. Trade Representative Lighthizer (who is covered in detail here). There are a couple of issues; firstly, the trade deal states that the issue must be unforeseeable (Bloomberg, 2020). However, the virus began mid-December, and was widely known by the authorities by the 26th December 2019; a month before this trade deal was signed (Shih, Rauhala, and Sun, 2020).

What does the U.S. have to do? The U.S. has promised to reduce tariffs on $120 billion of Chinese goods from 15% to 7.5% by the 15th, and forgo future tariffs for now, in exchange for $200 billion in purchases (Wei, 2020; Devonshire-Ellis, 2020). We can expect the manufacturing sector to be pleased with this, as inputs for production become cheaper and markets expect a return to normalcy. More troublesome for the U.S. in the meantime is that greater U.S. imports may lead to weaker ASEAN, Japanese, or any other countries imports, and in turn harm U.S. relations with China’s trading partners.