The Trump administration seems to have reached terms with Beijing over a "Phase One" China trade deal, which President Donald Trump will surely tout as a victory for himself and the United States. But if the president strikes the deal on the terms being reported, he will actually be making a huge concession to Beijing that achieves few U.S. goals, and is so bad that even Trump will have trouble spinning it as a political win.
On Thursday afternoon, several media outlets reported that the United States and China have agreed to a limited interim trade deal that will surely boost markets in the short term and provide a temporary de-escalation of the U.S.-China trade war. For more than two months, sources briefed on the negotiations told me, the two sides had been stuck. The Trump administration wanted to freeze tariffs in exchange for Beijing agreeing to purchase more U.S. agricultural products and granting more market access for U.S. financial firms. But China wouldn't sign off, demanding the White House sweeten the pot by offering substantial tariff rollbacks, as well.
On Thursday, The Wall Street Journal reported the Trump team caved on that huge point. If true, the result would be a deal that immediately relieves major pressure on the Chinese economy in exchange for future promises the Chinese side may never fulfill. Beijing's concessions also don't address the bulk of the structural issues and abuses that make Chinese economic aggression a long-term threat to the U.S. economy.
Of course, we know that no Trump decision is final until he announces it. He could still reject what his officials have brought him.
"It's all Trump's call," said Derek Scissors, a senior fellow at the American Enterprise Institute. "He either makes a call that's consistent with decades of his beliefs or he's getting played. . . . But he hasn't gotten played unless he rolls back tariffs."
Some reports said the interim deal includes some promises by Beijing to better secure intellectual property rights. But China has made and broken such promises many times before. Also, administration officials say the tough structural issues, including China's economic espionage, forced technology transfer and unfair subsidies would be tackled in a subsequent Phase Two agreement. But few believe that will ever happen.
"There is pretty much consensus there's not going to be any meaningful 'Phase Two,' "Scissors said.
If Trump substantially reduces tariff pressure on China as part of the Phase One deal, Beijing's incentive to make future concessions as part of any Phase Two negotiation disappears.
The conventional wisdom is that Trump is prioritizing his reelection prospects and needs a big win to brag about on the campaign trail. That's why he is lowering his terms for a deal. The Phase One deal was already a huge concession compared to the more comprehensive deal the two sides were closing in on in May.
If the president strikes the deal now, markets will surely go up in the short term - but late next year, the deal's weaknesses will be laid bare. If China doesn't do everything it's promised by the time voters go to the polls, Trump will bear the brunt.
As the election nears, the pressure on Trump to keep the market up and avoid any crises will only increase. Beijing knows that - and it's calculating that the U.S. president will have little leverage if China doesn't hold up its end of the bargain.
A bad deal is worse than no deal. That's why Trump was right when he said last week he likes the idea of waiting until after the election to make a deal with China.
"He is trying to pivot to negotiating and dealmaking for the last year of the first term. He wants to show he's the dealmaker in chief," said Tom Wright, a senior fellow at the Brookings Institution. "But he doesn't necessarily need [signed] deals for that strategy to work."
Trade hawks inside the administration have long argued that a deal on these poor terms will be a bad story for Trump - and they are right. He would be much better off turning down the deal on the table, maintaining the pressure and keeping the negotiations alive.
If he gets reelected, Trump will have all the leverage in the world to do what he's wanted to do for more than 30 years - finally stop China from taking advantage of the U.S. economy. But if he gets played now, the best and perhaps last opportunity to pressure Beijing to really change its bad economic behavior could be lost forever.