The US Trade Representative’s announcement of a “Phase One” trade deal between the United States and China is good news for the American economy
.The Chinese have agreed to purchase US agricultural products, energy and manufactured goods and made commitments on intellectual property protection and currency management.In exchange, President Trump agreed to reduce tariffs levied in September, including those on imports of apparel and accessories, as well as cancel new tariffs that were set to take effect on December 15th.
He retained the 25% tariffs on $250 billion in Chinese imports first imposed in 2018.If Trump hadn’t agreed to cancel the December 15th round of tariffs, the average US tariff rate on Chinese exports would have climbed to almost 24% — dramatically higher than the average tariff of 3.1% in place before the trade conflict began in July 2018.An agreement will not only avoid the levy of new taxes on US imports of cell phones, laptops and toys — products largely engineered, designed and marketed in the US — it will also preempt new Chinese retaliatory duties, including the re-imposition of tariffs on US autos and auto parts.
The December round of tariffs would have harmed American interests with very little impact on the Chinese economy. Of the estimated $160 billion of imports scheduled to be taxed on December 15, 60% would have been computers and other electronic devices, mostly cell phones and laptops. Most of these devices are assembled in foreign-owned factories operating in China like the Foxconn facilities that assemble Apple’s iPhones. The upshot is that these tariffs would fall mostly on American technology companies and their suppliers, with little impact on Chinese producers suspected of unfair subsidies or technology theft. Certainly, lower sales for these foreign producers could cause layoffs of Chinese factory workers, but the tariffs would do little harm to key players behind China’s drive for technological innovation.