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(SOUNDBITE OF MUSIC)
GARCIA: This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia.
VANEK SMITH: And I'm Stacey Vanek-Smith. Today on the show - trade war cease-fire.
GARCIA: Emergency podcast edition trade war cease-fire - kind of.
VANEK SMITH: Kind of.
GARCIA: Yeah. President Trump and Chinese officials have announced an agreement - well, the beginning of an agreement, anyways. And they're calling it the phase one deal.
VANEK SMITH: Under the deal so far, a lot of the tariffs that are in place on Chinese goods would stay in place. But apparently there would be no new tariffs put on imports from China. Some import taxes that are already in place would be reduced.
GARCIA: Plus, tariffs on $156 billion worth of goods against China. Tariffs that were coming down the pike just this weekend are going to be canceled. And that included tariffs on cellphones, toys and other things.
VANEK SMITH: So what does this mean for the U.S. economy, for China? To help us sus it all out, we called up our favorite guru on all things trade, Chad Bown.
GARCIA: Chad, a frequent guest on the show, is an economist at the Peterson Institute for International Economics, and he hosts one of our favorite podcasts called Trade Talks. Chad, welcome back.
CHAD BOWN: Thanks for having me.
VANEK SMITH: OK. Chad, really fast before the break - if you had to sum up this trade deal in one word, what would it be?
BOWN: I'm optimistic, but it might be still a little too soon to tell.
GARCIA: Eleven words - we'll take it - or whatever that was.
VANEK SMITH: I think you could do cautious optimism hyphenated.
GARCIA: How about incomplete?
BOWN: Incomplete with cautious optimism.
(LAUGHTER)
VANEK SMITH: We'll take it. We'll take it.
(SOUNDBITE OF MUSIC)
VANEK SMITH: Chad Bown of the Peterson Institute is here to talk trade with us. So, Chad, walk us through this deal or phase one of this deal, what we know so far. What have China and the U.S. agreed to?
BOWN: Well, the details are still coming out. But what President Trump tweeted this morning is he's not going to put the tariffs that were supposed to come on December 15 - he's not going to put those on. And that was a big deal. Those were going to cover a lot of consumer products, electronics.
He's going to scale back the tariffs that he had imposed in September. And that was on about $150-60 billion worth of clothes and shoes. Those will go from 15%, where they are right now, down to 7.5% percent. We don't know what exactly China has agreed to, but President Trump has said that they're going to agree to buy a lot more agricultural products, manufacturing products, energy products. And...
VANEK SMITH: Like, they're going to buy more of our stuff.
GARCIA: They're going to buy a lot more of our stuff, hopefully. And I think, most importantly, take on some of the commitments to do some of the structural reforms that are really what's behind the trade war in the first place. Now, that's obviously the hardest part of this.
VANEK SMITH: The intellectual property stuff?
BOWN: Well, we'll have to wait and see. But I think that's what everybody's hoping. But I think that's - it's still a little bit early to tell.
GARCIA: And immediate economic effects of this deal, Chad, do you expect any?
BOWN: No. So...
VANEK SMITH: Not even for consumers, where all sweaters get cheaper and stuff for the holidays?
BOWN: No. I mean, basically, I think - yeah, unfortunately, prices are probably going to stay the same, which is good. They're not going to go up. I think, had the tariffs of December 15 gone on, that would have been a big impact, but probably would have started showing up, you know, January, February, once the shipments started showing up on store shelves. But I think overall, it's better news, but it's probably not a huge economic impact.
VANEK SMITH: And, Chad, what are some of the industries that are going to be affected by this? Like, are there any goods that will still be taxed at really high levels? Are there some industries that are going to get a big break?
BOWN: So it is important to say that even with this deal, all of the tariffs that President Trump put on last year on China and that were ratcheted up earlier this year in June - and so this is 25% tariffs on $250 billion worth of products. Those are still going to stay on. And those are not things that you and I buy. Those are what economists call intermediate inputs.
So those are the things that companies buy that are parts and components that they use to make other things. You know, if they're making cars, there's a lot of auto parts we might buy from China, some some steel and aluminum, those kinds of things. All those tariffs still stay on. And so there's still, I think, a lot of work to do before we can say we're really out of the trade war woods.
GARCIA: Yeah. And, Chad, can you tell us a little bit more about exactly what President Trump and his administration are trying to get from China, especially what they're hoping China will start buying from the U.S.?
BOWN: Well, I think - the administration has a long list of things that they want from China. They certainly want China to buy more soybeans, more pork products, you know, corn, wheat, lots of agricultural products to help the American farmers. We'll see what happens there. But bigger issues are really more substantive.
There's a real desire to try to get the Chinese economy to transform, to become more market-oriented, to get rid of a lot of the subsidies that they give out to their companies that we think are unfair or when they don't protect patents or trademarks, copyrights, intellectual property of American companies and steal our ideas. Those are the bigger challenges that the administration is trying to address with these policies. But those are also some of the really hardest things to get the Chinese system to fix.
GARCIA: Yeah. And, Chad, we've discussed with you before on this show the idea that maybe the goal all along of not just the Trump administration, but of the Chinese government, too, might be for the two economies to just trade less, to become less dependent on each other, to start to decouple. And I'm wondering if this agreement makes you rethink that at all.
BOWN: No, it really doesn't. I think, if anything, you know, the Chinese have been woken up by the Trump administration's tactics in this whole thing. And they've seen how vulnerable they are to, you know, the trade policy actions of one single country, the United States. It's not just these tariffs that we have imposed, but we have done things like restrained the ability of American companies to sell certain high-tech products to China that their companies really need to have access to to be successful out there in the world. And so what they've decided is, well, they need to produce more of those things themselves and decouple in that sense.
So I think we're now - we just now are in a different state of the world after all of this. And we're probably not going to go back. There is going to be a certain amount of decoupling that's going to take place even if this deal does ultimately stick.
VANEK SMITH: And, of course, this is not the only trade news that we've been seeing. The big trade - the new NAFTA deal, USMCA between the U.S., Mexico and Canada was finalized. It's now heading to Congress for approval. I guess, would you mind summing up kind of what is happening with the U.S. and trade right now? Are things normalizing? Is this sort of the end of the trade war? Do you see 2020 as sort of a more trade normal year?
BOWN: I don't think...
VANEK SMITH: Also, you must be exhausted.
BOWN: Well, you know, hey, that's fine.
(LAUGHTER)
BOWN: But I think with with President Trump, he just likes trade conflict so much that I don't think I'm ready to even hint at suggesting that 2020 might be a more calm year for trade. We did see resolution, we think, to the USMCA, the new NAFTA, the new trade agreement between the United States, Canada and Mexico. There seems to be a deal between the Democrats in Congress with both the Trump administration, the government of Mexico and the very powerful labor unions in the United States to agree to some tweaks on the deal that President Trump had negotiated, to change it up slightly in a way that they might be able to put it forward to a vote and to get it passed through Congress - hasn't happened yet, but it looks possible. But that being said, the Trump administration likes trade conflict and likes to start trade fights.
So I think the really big concern that I have looking into next year is, who's next on their list? And over the last few weeks as well, they've started some new trade fights with Europe, with France. And so the concern is that once they get past USMCA, once they get past some of the U.S.-China conflict - though I don't think that one is really ever going away - they may simply turn their sights to other countries altogether and start some new trade fights.
VANEK SMITH: Chad Bown, thank you so much for talking with us.
BOWN: Thanks again for having me.
VANEK SMITH: Are you, like, going to go sleep for 15 hours?
BOWN: Are you kidding me? I have three podcasts of Trade Talks to record this afternoon.
(LAUGHTER)
VANEK SMITH: This episode of THE INDICATOR was produced by Darius Rafieyan. Our intern is Nadia Lewis. Our editor is Paddy Hirsch. And THE INDICATOR is a production of NPR.
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