January 20, 2020

Trump’s China Deal Is His Hedge Against Impeachment Damage
(Bloomberg) -- Sign up here to receive the Davos Diary, a special daily newsletter that will run from Jan. 20-24.Hours before the seven House Democrats managers marched articles of impeachment across the Capitol last week, President Donald Trump secured what he’s relying on to counter any political damage -- a cease-fire in the trade war with China.With little chance the Republican-controlled Senate will convict him on two articles of impeachment, the greatest danger to Trump is that the proceedings present an unfavorable portrait of the president durable enough to sway Americans against his re-election 10 months later.His hedge is the phase-one trade deal with China he signed on Wednesday. By calling a truce in a trade war that has dampened economic growth -- historically one of the most powerful engines of support for incumbent presidents -- Trump won what he’s counting on as a key element of his case for re-election.The signing ceremony coincided with the House vote to formally submit two articles of impeachment to the Senate for a trial, and he pointed out the juxtaposition to some of the GOP lawmakers at the event.“This is a big celebration. And, by the way, some of the congressmen may have a vote, and I don’t — it’s on the impeachment hoax. So, if you want, you go out and vote,” Trump said to laughter as a delegation from China stood behind him.It was a bit of stage management to show him at work on the economy just as the impeachment proceedings were about to commence, and he’ll have an opportunity for a repeat performance as the Senate trial is underway when he signs legislation implementing the U.S.-Mexico-Canada trade agreement.In Beijing, Chinese Foreign Minister Wang Yi said China was willing to “deepen cooperation” with the U.S., while also warning it would push back against international “bullying” and any attempts to “interfere” in its internal affairs. “The past four years of interactions show that both sides stand to gain from cooperation and lose from confrontation,” Wang said at a new year reception for foreign ambassadors on Monday.The trade conflict with China has been slowing down the economy just as the stimulus from Trump’s 2017 tax cuts and government spending increases fades, with election-year growth forecast to drop to 1.8% from 2.3% in 2019. Moreover, the tariff dispute has hit manufacturing especially hard, a critical contributor to the economies of Rust-Belt battleground states and even more important in counties that backed Trump in 2016.Workers’ wages also have started slowing. After inflation, average hourly earnings in December were up only 0.6% from a year earlier. Crucially for Trump, it is the trajectory of the economy that typically matters most for a president’s re-election, so a slowing economy works against him, though, of course, that is better than slipping into recession.Trump’s standing in the polls has departed from historic norms in tracking the economy, with his job approval rating never topping 46% in the Real Clear Politics average of polls despite a growing economy throughout his presidency.Democrats CounterattackWith unemployment low, Democrats have concentrated their fire on economic inequities, including dislocations caused by the trade war. As Trump celebrated the deal, some of the Democratic presidential candidates assailed him for achieving little despite a costly struggle.“True to form, Trump is getting precious little in return for the significant pain and uncertainty he has imposed on our economy, farmers, and workers,” former Vice President Joe Biden said. The deal “won’t actually resolve the real issues at the heart of the dispute.”The China accord doesn’t eliminate the negative impact of the trade dispute because Trump is continuing his existing tariffs covering $360 billion a year worth of Chinese goods. Those levies reduce economic growth and have particularly hurt manufacturing companies, with U.S. industrial production down 1% over the past year.Return to OrderBut the trade deal ends the threat of tit-for-tat tariff escalation and lifts some of the uncertainty businesses have faced. It also promises an immediate stimulus for Trump’s rural supporters through China’s commitment to increase agricultural imports from the U.S., even if many analysts doubt the Asian nation will reach $40 to $50 billion in annual purchases the president has promised.The sense of a return to order is underscored by congressional passage of the U.S.-Mexico-Canada Agreement legislation, which Trump plans to sign next week. Though the changes from Nafta are modest, enactment of the accord offers businesses an assurance of continued access to markets and supply chains in Mexico and Canada, the two largest U.S. trading partners.Trump’s rolling out of his trade deal with China has matched in an uncanny way with key moments in the impeachment process. His Dec. 13 announcement that the accord’s details had been nailed down coincided with a vote in the House Judiciary Committee to approve two articles of impeachment against him.Trump also betrayed during the signing ceremony how keenly he was tracking the fallout of his trade actions. And how much he and his and advisers had been paying attention to the financial markets, particularly last August when a summer of escalation caused fears the U.S. could slip into a recession. “We had a day where the market went down $1 trillion. Think of that,” he told the audience.Tim Keeler, who served as a senior trade official in the administration of President George W. Bush and is now a partner at the law firm Mayer Brown, said the “phase one” deal Trump signed provided Trump something he could use to counter criticism that economic pain of the trade war hadn’t achieved anything while heading off a potential catastrophe risk going into the election.“It had clearly reached a point where the markets reacted and couldn’t tolerate it any more,” Keeler said. “Not that markets are the most important factor politically, but they are a leading indicator and it posed risks for the president and the economy more broadly.”(Updates with comment from Chinese Foreign Minister in 7th paragraph.)\--With assistance from Peter Martin.To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net;Shawn Donnan in Washington at sdonnan@bloomberg.netTo contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, John HarneyFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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