This Is What A US-China “Deal” Would Look LIke

With the Phase 1 partial trade deal hanging in the balance, Beijing has been quietly pressing Washington to accept more tariff rollbacks and cancellations. And it looks like President Trump may have found a way to acquiesce to these demands without losing face.

Bloomberg reports that a Thursday press conference scheduled Thursday in Beijing will reveal the results of a joint government crackdown on fentanyl smuggling in China. US and Chinese law enforcement came together to bust up a major smuggling ring, per the report.

If all goes as planned, this could be a major political win for President Trump. Many of Midwestern swing states (like Ohio) have taken the brunt of the spike in drug-related deaths caused by fentanyl seeping into the heroin supply. It has been an elusive goal: Trump accused President Xi of going back on his promise to crack down on the production of fentanyl and its analogues.

In true Communist Party fashion, a show trial of the smugglers arrested in the bust will be broadcast on Chinese television. Then officers from China and the US will deliver briefings on the investigation and the results.

As BBG points out, a “win” on fentanyl will help Trump sell a trade deal to hardliners within his administration (hardliners like Peter Navarro, who has cited fentanyl as one of China’s seven deadly sins).

Still, Beijing denies Chinese fentanyl is being shipped to Mexico, though it has been widely documented that drug cartels in Mexico use Chinese fentanyl to spike kilos of traditional heroin, while increasingly selling pure fentanyl by the kilo. Though the press conference and bust are good, it would be better if Beijing promised to be more vigilant about banning “analogues” – chemical cousins of fentanyl that aren’t illegal but have the same basic effect.

Circling back to the tariffs, Bloomberg reports that Beijing has asked Trump to pledge to not only withdraw threats of new tariffs, but to pull back tariffs on $110 billion in imports imposed in September.

As we’ve noted in earlier posts, rolling back tariffs is a hard sell in the Trump Administration, where Trump’s top hard-line trade advisors see tariffs as a critical enforcement tool. Beijing has lied to the US before (they lied to Obama for years), and without some mechanism to hold the Chinese accountable, any trade deal wouldn’t be worth the paper it’s written on.

Beijing argues that if it’s going to make major concessions like increasing farm purchases and cracking down on IP theft, the US should also give up something significant. Plus, markets would undoubtedly interpret any tariff relief as a positive for global growth.

To reach a deal, China and the US must simultaneously remove the existing additional tariffs at the same ratio, which means that tariffs to be removed should be in proportion to how much agreement has been reached. https://t.co/ciDfb7Z8VI

— Hu Xijin 胡锡进 (@HuXijin_GT) November 5, 2019

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Some fear Beijing is clinging to the hope that Washington will drop all the tariffs – numerous White House insiders have insisted to the press that this is a non-starter, and that Trump is convinced that the bulk of the tariffs must remain intact for years.

At the end of the day, whatever Beijing decides regarding the tariffs – whether it can live with some of them for a brief time, or not – could determine whether the partial deal is signed, or not.