China to U.S.: Drop the tariffs and we’ll buy $70 billion worth of American goods

Proof that President Trump’s trade negotiation strategy is winning? One thing any serious negotiator has to understand is that you’re in big trouble if you bluff and your bluff gets called. If the threat of tariffs is really just designed to get a better deal done, then the person making the threat has to be prepared for the possibility that the better deal won’t be forthcoming. If he’s not willing to carry through on his threat, he’ll never be able to use such a threat again because no one will believe him.

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I was never really concerned that President Trump was unwilling to impose tariffs. I was concerned that he was too willing. But did it just work, at least with China?

China offered to purchase nearly $70 billion of U.S. farm, manufacturing and energy products if the Trump administration abandons threatened tariffs, according to people briefed on the latest negotiations with American trade officials. In weekend talks in Beijing, Chinese negotiators led by Liu He, President Xi Jinping’s economic envoy, presented a U.S. team headed by Commerce Secretary Wilbur Ross a package that includes Chinese companies buying more U.S. soybeans, corn, natural gas, crude oil, coal and manufactured goods. Chinese and U.S. officials estimated the value of the package at nearly $70 billion in the first year. President Donald Trump has pressed China to commit to reduce the $375 billion U.S. merchandise trade deficit with China by $200 billion. Chinese officials are arguing this could go a long way toward meeting that target. Throughout the negotiations, Mr. Liu made clear to Mr. Ross that the offer would be void if Washington proceeds with its plan to impose tariffs on $50 billion of China-made products, the people briefed on the talks said.

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This sounds like a win, but when you think about how trade really works, I’m not so sure it is. On a long-term basis, what makes trade lucrative is when markets remain open to your goods and customers in those markets keep coming back and buying on a regular basis – not as a negotiating tactic against an unwelcome public policy, but as a reflection of genuine, organic demand. If the communist Chinese are going to bring about a $70 billion purchase on a one-time basis to get rid of tariffs, but there is no ongoing demand among Chinese businesses and consumers for U.S. goods, then the benefits here are neither sustainable nor particularly impactful over the long term. This is what President Trump doesn’t understand about trade, which is weird because he comes from the private sector. Trade is a series of decisions by private actors, not by governments. No matter what the Chinese communists decide to buy today, the established market dynamics will be what they are until actors in the market freely decide to change them.

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