U.S. and China reach phase one trade deal
It’s almost like Christmas came early for U.S. Trade Representative Robert Lighthizer.
Last week, he delivered on two of President Donald Trump’s most important economic priorities after months of tense discussions, and notched a win far from Washington on an issue of global importance that he himself had angled to get for decades.
Within days, the trade representative announced an agreement with House Democrats on the renegotiated North American Free Trade Agreement, finalized the terms of a partial deal with China and brought to a standstill the appeals process at the World Trade Organization.
Lighthizer, who became Trump’s chief trade adviser in 2017 with the goals of getting strong Democratic support for trade agreements and rebalancing the economic relationship between the world’s two largest economies, hailed both the China deal and the new NAFTA as historic achievements.
While many analysts saw these steps as more incremental than monumental, the week’s results surprised skeptics who thought neither was possible in a bitterly partisan environment.
“With all the chaos, it’s easy to lose sight of Lighthizer’s consistency in his China approach,” said Derek Scissors, a China expert at the American Enterprise Institute. “USMCA wasn’t easy but those are actually good trade partners. China will take much longer and Lighthizer has worked the two negotiations the way they need to be worked: finish USMCA as fast as possible and be patient on China.”
On Friday, the U.S. and China announced that they agreed to an 86-page text detailing the first phase of a broader trade agreement. It will involve reduced tariffs in exchange for more Chinese purchases of American farm goods such as soybeans and pork as well as commitments on intellectual property, forced technology transfer and currency markets.
Critics and supporters of the China agreement will have to wait a few more weeks until they can analyze the fine print. It’s expected to be signed by Lighthizer and his counterpart, Vice Premier Liu He, in early January in Washington and released publicly then.
While it will take months or maybe years to assess whether the deal actually works as advertised, some opponents were quick to judge it, arguing that the president had sold out because the limited agreement doesn’t resolve all the big issues.
Lighthizer acknowledged to reporters Friday that “a huge amount” is outstanding and has to be resolved in future negotiating phases. But the hardest thing was to get the first deal on paper, in his view.
“But I’m not Pollyanna. I know integrating these two systems is going to be a very long-term issue,” he said. “No one would have thought we could have done what we did. We’ll find out whether we can.”
The trade chief also responded to doubts that Beijing will never make good on its promises.
“A skeptic would say ‘we’ll see’ and that’s probably a wise position to take,” Lighthizer said. “But our expectation is that they keep their obligations and in any event, they’re enforceable.”
The enforcement piece, if it works as described, will be the biggest difference from previous bilateral dialogues. A “specific mechanism” will ensure commercial consequences such as tariffs or other remedial measures will follow if a party doesn’t abide by the agreement, according to USTR.
On Dec. 10, as the U.S. and China were on the brink of their negotiations, Lighthizer flew to Mexico City to sign a separate trade deal with Mexico and Canada. The three countries inked amendments to a free-trade agreement they first reached more than a year ago and that Lighthizer helped to unlock approval for from House Speaker Nancy Pelosi.
In securing the overhaul of NAFTA, now called the U.S.-Mexico-Canada Agreement, Lighthizer managed to bring together an unlikely group of allies that rallied behind the deal he struck with House Democrats. AFL-CIO President Richard Trumka, Democratic Senator Sherrod Brown and others -- who for decades existed on the fringes of the trade debate -- last week came out to support the agreement.
Lighthizer for years advocated for more worker-oriented trade policies. That history helped him at the negotiating table because stronger labor provisions were one of the key demands of Democratic lawmakers.
But the path there wasn’t easy. The months-long negotiations with Mexico and Canada, and the subsequent talks with Democrats, threatened to fall apart more than once. The president and his advisers who mistrusted Pelosi complicated the process, said people involved in the talks.
“The renegotiated USMCA that will be voted on is improved despite the president, not because of him,” said Michael Wessel, who works with the United Steelworkers union.
The week in Washington was so eventful that it was easy to overlook a major development in Geneva. For many countries and supporters of the multilateral trading system, what happened to the WTO’s appellate body was an ominous sign. For Lighthizer, it was a long overdue win.
On Dec. 11, the WTO’s appellate body lost its quorum of members who can decide on appeals and thus became paralyzed, unable to take on new cases. The development wasn’t unexpected -- coming after two years of haggling with the Trump administration, which has accused the panel of judicial overreach, among other issues.
The criticism predates the current U.S. administration and in private, America heard much support for its views. But unlike previous administrations, this one set down an ultimatum, and here too, Lighthizer got his way. He pushed for the system to be dramatically reformed or dismantled. When it didn’t, the U.S. just blocked the appointment of new appellate members.
Looking back on the week, Dan DiMicco, the former CEO of Nucor Steel, said Lighthizer delivered on the centerpieces of the trade agenda they both helped craft for the Trump administration: NAFTA, China and the WTO.
“He is the driver,” DiMicco said of Lighthizer. “Without him none of this would be possible.”