More analayis of the trade deal most here will not want to read or hear

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Increased American sales to China would likely mean a loss of market share for competing nations. As U.S. producers step up output, excess supplies from other countries could put downward pressure on prices, which are set in global commodity markets.

Neither is the trade deal likely to affect the overall U.S. trade balance or gross domestic product significantly, contrary to administration claims. A quick primer on national income accounting from J.P. Morgan’s chief U.S. economist, Michael Feroli, demonstrates as much.

Skipping over the algebra, the current-account deficit (basically the trade deficit) is equal to the difference between savings minus investment, with the shortfall being funded by a surplus in the capital account. So, to reduce the current account means increasing savings, relative to investment. But “many hope the easing of trade policy uncertainty should help increase investment, leaning against the argument the current-account deficit will narrow as a result of this deal,” Feroli writes.


To keep the U.S. current account unchanged amid a boost in exports would require an increase in the dollar’s real exchange rate. While U.S. producers selling to China would benefit, those that supply non-Chinese markets would lose out, he adds.


Coincident with the phase-one pact, Washington dropped its designation of China as a currency manipulator. “The U.S. Treasury made a purely political point in 2019 of accusing the Chinese of currency manipulation, and the agreement corrects nothing that was out of order before,” veteran economist George Magnus points out. “The yuan does not float freely, and maybe never will, but it is neither over- nor undervalued by a significant margin.”

The latest Treasury International Capital data released late Thursday contradicts the assertion that Beijing has been deliberately driving down the yuan, which it would do by buying dollar assets. Rather, China sold more than $120 billion of U.S. Treasury securities in the first 11 months of 2019, which would tend to prop up its currency. Those sales put China on pace for the second-largest annual sales of Treasuries since 2016, when it sold $155 billion, and when Barron’s explained why Trump was wrong about Chinese currency manipulation.

So, was the trade deal worth the cost in the slowing of global growth? “Like most things, the answer is likely heavily influenced by political ideology,” contends Stephen Pavlick, a Washington policy analyst at Renaissance Macro Research.

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