Many analysts following the U.S.-China trade war got what they’ve been expecting last week: A sketchy trade agreement followed by massive hyperbole about what it will accomplish.
President Trump called the agreement “tremendous” and “very substantial,” even though:
It’s not written yet.
China doesn’t see it that way.
All of Trump’s punitive tariffs remain in place.
Under the “phase one” deal, China is supposed to ramp up purchases of U.S. farm products during the next two years, to about twice the prior level. It will also agree to unspecified limits on the forced turnover of technology by U.S. firms doing business in China. And it will ease the entry of U.S. firms into China’s financial sector. Trump will reciprocate by cancelling plans to raise tariffs, due to go into effect October 15.
For now, financial markets seem to be taking Trump’s word for it that the deal is a meaningful step forward. Stocks rose on Oct. 11, the day of the handshake agreement, and they held onto those gains in the following session, despite growing skepticism of the deal.
Yet some analysts think the deal is flimsy or unsustainable or unlikely to change much. “We stress that the temporary truce does not clear the cloud of trade policy uncertainty that has been affecting the global economy,” Citigroup analysts wrote on October 13. “The persistence of the US-China trade war poses a downside risk to the global trade outlook.”
Here’s one warning sign: China isn’t describing the deal the same way Trump is. Chinese media say more talks are needed before there’s any kind of agreement. To get a deal, Trump may have to cancel his plan to impose 15% tariffs on another $160 billion on Chinese imports beginning December 15. And the two sides remain far apart on issues the Trump team has said are crucial, including Chinese subsidies for big state-owned corporations, cyber theft and foreign investment restriction in industries besides financial services.
Trump hyperbole has been a mainstay of the China trade dispute. Last January, Trump tweeted, “talks with China are going very well!” In reality, there was no progress. In late June, Trump said a meeting with Chinese President Xi Jinping went “far better than expected.” Less than three weeks later, a frustrated Trump announced new tariffs on $325 billion worth of Chinese imports. And Trump famously claimed trade wars are “good, and easy to win,” when he began rolling out his tariff campaign 18 months ago. Nothing but escalation followed.
Trump sugarcoats everything, in fact—sometimes to the point of fantasy. He claimed the new trade deal with China and Mexico was “the most important trade deal we’ve ever made, by far”—even though the changes it made to the old North American Free Trade Agreement are “mostly cosmetic,” according to the Brookings Institution. Trump called the 2017 tax cut law the “biggest reform of all time,” even though it is having no discernible effect of economic growth this year, which is middling. He has claimed Mexico is going to pay for his border wall, even though Mexico is not.
It’s not news that Trump exaggerates and lies about his accomplishments. It might be news if he told the truth. So when Trump claims a handshake deal with China is going to improve trade prospects, wait to see it in writing.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: firstname.lastname@example.org. Encrypted communication available. Click here to get Rick’s stories by email.