Wednesday’s trade deal between the United States and China is certainly good news for Midwest farmers and factories.
We’re describing it as a trade deal, but it’s as much a temporary cessation of hostilities as it is the dawning of a new era. We’ll take it. Global trade is enormously important to the Midwest’s farmers and manufacturers. Trade disruptions are costly. Speaking of which, there’s other news to celebrate: The Export-Import Bank is back in full operation after a long period in political limbo. More about that below.
EXTRA $80 BILLION
FOR U.S. FARMERS
The trade agreement is expected to include a Chinese commitment to increase U.S. goods imports by $200 billion over two years, including increased purchases of soybeans and other agricultural goods that would reach $40 billion a year (Hello, downstate farmers preparing for planting season). In exchange, the Trump administration dropped threats to impose tariffs on $160 billion of Chinese goods, such as smartphones, toys and clothes (Hello, American consumers). The U.S. also will cut tariffs on another $112 billion of Chinese exports from 15% to 7.5%.
Tension is part of the negotiation process, and that has been the case in the trade tussle with China. There is plenty to demand from a rising China in terms of becoming a more trustworthy participant in the global economy. President Donald Trump made a priority of getting Beijing to put a stop to theft of U.S. intellectual property, expand access to Chinese markets, curb government subsidies to Chinese companies and buy more American agricultural goods. We support those aims but saw Trump falling victim to his own boasts that he’s the world’s best negotiator. Instead of being strategic, or at least patient, he went hardball ASAP and set off a trade fight that hurt American exporters.
REASONS TO BE
HAPPY — AND SKEPTICAL
Neither country gained from prolonging the impasse, which is why the two sides began working their way toward an agreement to end hostilities. Markets are thrilled: The S&P 500 and Nasdaq are in record territory. Farmers are happy, too. If China follows through on its promises, it would become a much larger purchaser of American ag products than in the past.
There’s still more negotiating to be done with China. The Trump administration says the first stage of the deal includes more protection for American intellectual property and an end to China’s practice of forcing American companies to transfer technology to Chinese partners. Those are important commitments, but such promises are hard to assess, and even tougher to monitor. Skepticism seems wise.
The second phase of the broader agreement with China would focus on demands that Beijing restructure its economy by ending or reducing government subsidies to state-owned enterprises. Those are the kinds of discussions that could drag on for years.
WHY THE EX-IM BANK
MATTERS TO THE MIDWEST
As for trade victories, the resurrection of the Export-Import Bank should give an immediate boost to Midwestern companies, including smaller and midsize firms that sell their goods globally. Congress reauthorized the bank for seven years despite attacks by some conservatives who cite the bank as an egregious example of government overreach and corporate welfare.
Sure, in a world where free-market principles were embraced universally, there’d be no need for the Ex-Im, but that’s not the case. Other countries like China operate banks that support their exporters, potentially putting American companies at a severe disadvantage. America’s Ex-Im Bank works on behalf of U.S. exporters to issue credit insurance, guarantee loans and lend directly to foreign customers. That helps American companies — many of them in Illinois and other manufacturing states — to compete with global rivals. The bank does important work, and it’s profitable.
Illinois is a farming and manufacturing state. People here know how to thrive in that global economy. With a China trade truce and a functioning Ex-Im Bank, there will be more winners in Illinois and its business capital, metropolitan Chicago.