Trump's underwhelming trade truce

President Trump's trade war with China is on hold. Whether this turns into a genuine armistice or just a momentary ceasefire remains to be seen.

America and China have been in economic combat for months. President Trump imposed 10 percent tariffs on $200 billion worth of Chinese exports to the United States. China responded with tariffs of its own on various U.S. exports. The countries have been at loggerheads over Chinese policies that make it difficult for American businesses to set up shop in China, and that force them to share technology and know-how when they do. With little progress made after a year, Trump was planning to hike his tariffs to 25 percent — and maybe even impose tariffs on the remaining $267 billion that China exports to American shores.

But then Trump and Chinese President Xi Jinping met face to face at the G20 summit in Argentina this weekend. Observers had hoped this would give the two leaders a chance to cool things down. And over a dinner of grilled sirloin and seasonal vegetable salad, they seemingly did.

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The White House announced it wouldn't raise the 10 percent tariffs to 25 percent, instead giving the two countries 90 days to talk out their problems. Jinping agreed to "negotiate immediately on forced technology transfer, intellectual property protection, non-tariff barriers, and cyber theft," according to the statement.

What happens if there's no deal after 90 days? Well, the 25 percent hike will kick in. And the threat to slap tariffs on everything China exports to the U.S. will presumably be back on the table as well.

The Trump administration also said China would purchase "a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries." Furthermore, China agreed to start buying more agricultural products immediately — which presumably means scaling back some of its retaliatory tariffs, some of which had targeted Trump voters and more rural industries specifically. China also said its regulators would designate fentanyl as a controlled substance, which will help with America's ongoing opioid crisis. China even supposedly agreed to bring its tariffs on U.S. cars more in line with its duties on automobile imports from other countries.

On the surface, this seems like a win. The Dow celebrated by rising hundreds of points. Trump was in full salesman mode, describing it as an "incredible deal," while the Chinese foreign ministry called the talks "very successful."

And yet ...

There are problems with this deal. First off, China and the U.S. have a lot of disagreements, and three months is not a lot of time to solve them — especially since the two countries have been at it for over a year. "Once the afterglow of this dinner meeting fades, reality will begin to set in fairly quickly," Eswar Prasad, an expert on Chinese economic policy and trade, told Bloomberg. "I don't see an easy path within the 90-day window to resolve the differences they have."

How is everything supposed to get sorted out? The Chinese often say they're willing to at least talk about reforming forced technology transfer and the like. But the onerous requirements China places on foreign businesses and its limits to market access aren't just an instance of the Chinese being cantankerous. They're logical extensions of China's state-run, capitalist-communist hybrid economy.

"They won't dismantle their system of state-owned enterprises, as those companies are among China's most powerful special interest groups," observed economist Tyler Cowen. "Nor will China give the major U.S. tech companies free rein in China, if only for reasons of national security and China's desire to build a surveillance state based on data controlled by China." For the autocratic Chinese government, changing those things isn't just regulatory reform; it would bring the whole framework of their economic policy into question. Furthermore, Trump's preference for country-to-country trade deals instead of big international agreements actually weakens his hand here, since China is more likely to bow to pressure from the latter.

The Chinese agreements an automobile tariffs and fentanyl are real, but also minor concessions. China's promise to start buying more U.S. exports, and thus bring down the trade imbalance, isn't new: It's something they've been dangling in front of Trump for a while now. Nor is it likely to do all that much for the trade balance, absent a wholesale reform of currency policies. You might have also noticed there's no actual dollar amount attached to that promise yet — indeed, China's own announcement of the deal didn't even mention the purchases. (Nor did it mention intellectual property, for that matter.)

The main accomplishment of this weekend's chat seems to be a thawing in relations. Dialogue between China and the U.S. has reportedly been stymied for months by a disorganized White House at war with itself. Putting Trump and Jinping in the same room cut through the clutter. Meanwhile, on the Chinese side, the government was insisting that America drop all of Trump's tariffs as a first step in negotiations. That demand now appears to have been set aside as well.

You might count these changes as real victories in themselves, and possible indications of further possibilities down the road. After all, despite hand-wringing over Trump's hard-charging style on trade, he delivered real changes in the NAFTA talks. But you could also be forgiven for finding the terms of this ceasefire decidedly underwhelming. Chances are high that hostilities will eventually recommence.