President Trump has just signed the first part of a new trade deal with China.  While the complexity of the U.S.-China relationship makes complete deals very difficult, this deal is a monumental first step toward free and fair trade.  In the short term, the deal will help certain industries that were hurt by the trade war.  In the long term, Chinese markets will be fairly opened to U.S. manufacturers.

This deal is a huge win for all Americans including workers, taxpayers, businesspeople, consumers, and investors.  Here is what the deal does:

China has agreed to continue to eliminate tariffs on agricultural products, and the Chinese will purchase as much as $50 billion of American produce in the next two years.  This is great news for farmers who have been struggling since China retaliated to Trump's tariffs by placing tariffs on their products.  This deal assures them strong steady demand going forward.

China will also purchase another $150 billion of other US manufactured goods.  This will increase production at many factories, which will increase their demand for workers.  Moreover, these Chinese markets will remain open into the future.

China has also agreed to stop manipulating their currency.  This is an unheard-of victory for the US.  Historically China kept devaluing their currency which made their goods cheap for us to buy and our goods costly for the Chinese to buy.  That's why so many American companies started manufacturing in China and why we have such a negative balance of trade.

American companies can now own 100% of their company.  Prior to this new agreement, any company in China owned by Americans had to be majority owned by a Chinese entity, so Americans ended up owning only 49% of their own company.  Now they can own 100%.

The deal also begins to address the protection of intellectual property rights and opening Chinese financial markets to U.S. companies.

Signing the deal January 15, 2020.  Who looks happier?
You Tube screen grab (cropped).

While the next phase of the deal will be very difficult, this first phase will strengthen a fair and truly mutually beneficial economic relationship between the U.S. and China.  Generally, as economic relationships improve, political relationships tend to also improve.

One issue not addressed in phase one is government subsidies of Chinese companies.  Because Chinese government subsidies pay some of the Chinese companies' costs, they can profitably sell their products at lower prices.  This allows companies to grow quickly.  The Chinese government considers these subsidies investments since the new companies eventually end up generating far more government revenue than the cost of the subsidy.

However, because the subsidized company profitable sells products at a lower price, unsubsidized U.S. companies cannot compete.  Businesses close, and factories are shut.  But many Chinese companies get a subsidy, and China will not want to slow growth by agreeing to eliminate subsidies.  This will be a difficult problem to solve.

Other countries do the same thing.  In Europe, Airbus receives large government subsidies.  In spite of the World Trade Organization determining that the subsidies are not legal, they do continue.  Airbus was formed about 50 years ago.  Partly because of the government subsidies, Airbus is now the largest airliner manufacturer in the world.

Phase 2 of the China trade deal will take some time as those difficult issues are addressed.  Adding to the difficulty are the political issues.  Hong Kong and Taiwan are problems for China as the residents there seek more freedom and democracy.  The U.S. generally supports these positions, but that support is in direct conflict with China's interests.

Then there is the issue of North Korea.  Trump wants them completely de-nuclearized.  North Korea is reluctant to do that.  China is North Korea's largest trading partner and there is a long-term relationship there.

Phase one of the deal is a huge success.  Couple this with the new free and finally fair trade deals that Trump has signed with Mexico, Canada, South Korea, and Japan, and foreign markets will finally be opened to American business.  That means more jobs with generally rising wages, more opportunities for business to expand.

President Trump has won the trade war, although there are still some issues to resolve.  Trump's tough bargaining position has insured that foreign markets will be open to U.S. businesses.  This is good for all Americans.

Michael Busler, Ph.D. is a public policy analyst and a professor of finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics.  

Photo credit: YouTube screen grab (cropped).