The new trade agreement that the United States and China signed on Wednesday benefits South Carolina exporters and greatly relieves investors.
But the deal is more of a truce than a settlement of the issues President Trump and others have raised against China’s exploitation of world trade rules. In a potentially more effective move, the United States on Tuesday joined Japan and the European Union in proposing new rules that would deny China privileges it currently abuses.
If adopted and enforced, the new rules would be even more favorable to South Carolina.
South Carolina’s Sen. Lindsey Graham praised the new trade pact for opening Chinese markets, calling it “a giant step towards China changing their unfair business practices, including currency manipulation and forcing American companies to transfer technology as a price of doing business in China.”
The deal helps S.C. exporters by freezing the Chinese tariff on imported vehicles at its current 15 percent, shelving the damaging threat of an increase to 25 percent. That will be a relief to South Carolina’s car and light truck manufacturers and a signal that it’s safe to invest in their plants.
The deal also freezes tariffs on agricultural products and opens the door to a major expansion of U.S. agricultural exports to China, including from South Carolina. Nationally these fell from around $20 billion a year to less than $7 billion for the 12 months ending in April 2019, during the tariff war. The Trump administration claims that China has promised to purchase at least $40 billion a year in U.S. agricultural products, about twice the previous average. But given the world pattern of agricultural trade, it will take time to build up to that level.
Nevertheless, the deal should be of particular benefit to South Carolina soybean producers. During the tariff war, South Carolina soybean production fell 35 percent and farmers’ earnings dropped by $60 million (more than a 40 percent loss), according to the U.S. Department of Agriculture. Those figures should begin to improve.
Overall, China promises increased purchases of U.S. goods and services, an end to tariff threats (although existing tariffs will remain) and greater access to its financial sector.
The United States is at least temporarily giving up its demands that China undertake extensive legal and structural changes to liberalize its trade. But the pact says the two countries will hold periodic meetings to monitor implementation of the agreement and settle disputes about its terms. Last spring China’s trade negotiator agreed to extensive reforms but was overruled by President Xi Jinping.
The key problem the United States and other developed trading partners have with China is its exploitation of World Trade Organization rules meant to benefit developing countries with weak economies. Under current rules, China can qualify for exceptions to the general tariff rules. For example it charges a 15 percent tariff on imported cars while the WTO sets a 2.5 percent limit for developed nations. (The EU is also exempt from this rule, but for a different reason.)
President Trump has not succeeded in getting China to unilaterally agree to drop its claim for exceptional treatment, but he has kept up the pressure for change, and has reached agreement with Japan and the European Union that the rules exploited by China must be revised. For S.C. manufacturers and farmers, that’s worth celebrating.
