Eakinomics: Buckle Up

It could be a bumpy week. If expectations are met, the House will vote Tuesday on the appropriations for fiscal year 2020 (which started on October 1), Wednesday on impeachment of President Trump, and Thursday on the United States-Mexico-Canada Agreement (USMCA). The policy bookends to the impeachment vote represent two-thirds of the “deals” closed last week by the administration – the third being the “Phase 1” trade deal with China. The flurry of genuine policy activity represents a welcome change from the politics of impeachment and the political messaging nature of bills like Speaker Pelosi’s drug pricing reform bill.

The bad news is that we actually know precious little about these deals. The China deal has all the right words in the table of contents – Intellectual Property, Technology Transfer, Agriculture, Financial Services, Currency Manipulation, Opening China Markets to U.S. Goods, and Dispute Resolution – but it is hard to know exactly what those provisions will be. And there remains confusion about the path to lower tariffs on imports from China. The December 15 tranche of tariffs is on hold indefinitely, and the previous tranche was lowered from 15 percent to 7.5 percent. The Chinese are clearly expecting further reductions in the future, but the president evidently feels these are the stuff of a Phase 2 deal and not before.

Similarly, the supposed commitment of the Chinese government to raise agriculture imports to $50 billion a year (up from half that before the trade war started) and a total of $200 billion in imports from the United States (also roughly doubling those imports). There are two challenges with these commitments. First, they are large macroeconomic changes and will require diverting imports from other countries. Second, they are absolutely inconsistent with the general demand that the Chinese government have less influence on their firms. There is no way to meet such a commitment without tremendous involvement.

So, on China trade the best grade is a firm wait-and-see.

What about the budget deal? Again, the key aspect is how the two sides resolved the dispute over funding the wall on the southern border. We will learn more today, but this is also a case of a firm wait-and-see.

Which leaves the USMCA. This is the best-known of the three issues, and will be one best understood by the time the Senate votes in January. But as noted in an earlier Eakinomics, most of the provisions added to get sufficient votes in the House are the kind of targeted favors that are at odds with the basic idea of a trade agreement: lower the barriers to market participation, allowing workers, firms, and consumers greater choice and competition.