President Donald Trump made imbalances in trade a large part of his 2016 campaign and his re-election. He recognized this as a potent political wedge issue that could win over disaffected Democrats, especially in swing states like Pennsylvania, Michigan, Ohio, and Wisconsin which have been hurt by the decline in manufacturing. And, his strategy worked as he surprisingly swept those states.

With the passage of time, it's become increasingly clear that President Trump's tariffs and rhetoric haven't resulted in significant change. The "phase 1" trade deal relaxed tariffs by 50% in exchange for China agreeing to purchase $200 billion of additional U.S. products. Trade figures show that this is not happening.

This has put President Trump in the teinous position of either admitting that the "phase 1" trade deal has not been a success which would be damaging to his prospects, or he must ignore China's defiance and continue selling the deal as if it's a success. Currently, he's choosing the latter path. Instead of attacking China for its economic policies, he is attacking its handling of the coronavirus outbreak.

Another way that China is defying the spirit of the trade agreement is the continued devaluation of the Chinese Yuan which makes its exports cheaper for the rest of the world. It's currently near a 10-year high, and 10% higher than early-2018. The tariffs are blunted by a weaker currency.

What the Numbers Say

Starting in 2018 and through mid-2019, the Trump administration's tariffs on China went into effect with threats of more to come, unless some concessions were made. In total, the U.S. imposed tariffs on $360 billion of Chinese goods with tariffs between 10 and 25%, while China placed tariffs on $110 billion of U.S. goods.

While China got a meaningful concession from "phase 1", Chinese purchases simply haven't materialized. This is evident from agricultural commodity prices which remain depressed near multiyear lows. USDA farm data is also showing that Chinese purchases of agricultural commodities were lower in the first quarter than the previous, few years. US Trade data also shows that US exports to China through the first four months of the year were lower than in previous years.


A cynical view has always been that Trump's animosity towards China was more political than genuine. Up till the election, his businesses, family, and campaign were selling "Made in China" products to customers. Two of his closest advisors are Steve Schwartzman of Blackstone (BX  ) and Sheldon Adelson of Las Vegas Sands (LVS  ). Both have extensive ties to China and were reportedly means of backchannel diplomacy.

The early returns on the "phase 1" traded deal seem to favor this cynical view that a fundamental transformation of the U.S. and China relationship hasn't taken place. In fact, it's possible that more damage has been done since U.S. imports are down, while the weaker currency is defraying the tariff burden.