The Morning Dispatch: What's in 'Phase One' of the China Deal?

Plus, Is China helping ease the U.S.’s economic pressure on Iran?

Happy Monday! We were feeling pretty good about ourselves here at The Morning Dispatch wrapping up launch week. Five morning newsletters, a few pieces for the website, we finally both have a digital recorder. Then we read that 17-year-old Wolf Cukier discovered a new planet on the third day of his internship at NASA, and we recalibrated.

Quick Hits: What You Need to Know

Depressurizing the Trade War

At a campaign rally in Toledo, Ohio, last week, President Trump led off his stump speech with some big news to report to the assembled faithful on trade. After a few minutes of bragging about his new U.S.-Mexico-Canada trade agreement, he turned to talk of China:

“You remember I came and I’d always talk about how bad our trade deals are. … On January 15, we’re signing a monster, a big beautiful monster: $40 to $50 billion to our farmers. Our farmers will be taken in. I keep saying to buy larger tractors.”

When The Hill tweeted out the clip, it caused a minor sensation. Shorn of context, it seemed like Trump was saying the White House was about to authorize another monster aid payout to farmers hurt by his trade war with China—payouts that have already neared $30 billion, triple what the 2008 auto bailout ultimately cost U.S. taxpayers.

But the “monster” Trump plans to sign on January 15 isn’t another bailout. It’s the “phase one” trade agreement the U.S. has finally hammered out with China—the first small step toward reconciliation in a trade war that has only escalated over the last few years, and a ray of hope for the U.S. industries that have felt its effects the worst.

Last year was a bleak one for U.S. farmers and manufacturers. Despite the aforementioned tens of billions of dollars of federal farm aid, farm bankruptcies climbed 24 percent from 2018 and farm debt reached an all-time high. U.S. manufacturing failed to sustain the healthy growth the sector had enjoyed during Trump’s first two years in office. As Trump’s tariffs expanded to include more products, that growth ground to a halt, then reversed, with manufacturers reporting net job losses through the fall and into December.

The “phase one” deal promises at least partial relief, in two ways. First, there’s the tariff relief: Rather than impose another $156 billion in tariffs going into 2020, as Trump had planned last year, the White House will halve the 15 percent tariff on approximately $120 billion in Chinese goods it imposed last September.

And second, there’s China’s reported agreement to buy $200 billion in U.S. goods over the next two years, which the White House says will include—and here’s that number—$40 billion to $50 billion a year in U.S. agricultural products.

We won’t see the actual text of the agreement until it’s signed this week, and we won’t know whether China will hold to its side of the bargain until much later than that. The agricultural products number in particular has been met with plenty of skepticism, given that China has never bought more than $26 billion in farm products from the U.S. in a single year.  

And although the deal isn’t the out-and-out socialism critics mistook it for, it is fair to knock the central planning of the deal in one respect: It’s plain that one big consideration that went into the arrangement was Trump’s own political prospects. This could be seen from his own comments to reporters last Thursday about what went into “phase one” versus what will hopefully happen in “phase two”: “Phase one is a big, big number. It is a big percentage of the deal. It’s pretty much all for the farmers. … We’ll start right away negotiating phase two. It will take a little time. I think I might want to wait to finish it until after the election, because by doing that I think we can actually make a little bit better deal, maybe a lot better deal.”

All in all, though, any deal at all is cause for relief—although how much remains to be seen.

(For a highly accessible and thorough look at trade policy in the Trump era, check out Scott Lincicome’s analysis today in The Dispatch.)

Concerns Over China’s Iranian Oil Buying

In the wake of Qassem Suleimani’s death and Iran’s retaliatory strikes on American bases in Iraq, President Trump reached into his diplomatic toolbox and pulled out his second-favorite economic weapon (tariffs being the first): sanctions. 

“The United States is targeting senior Iranian officials for their involvement and complicity in Tuesday’s ballistic missile strikes,” Treasury Secretary Steven Mnuchin said in a press release. “We are also designating Iran’s largest metals manufacturers, and imposing sanctions on new sectors of the Iranian economy including construction, manufacturing, and mining. These sanctions will continue until the regime stops the funding of global terrorism and commits to never having nuclear weapons.”

The administration has been ratcheting up the economic pressure on Tehran since withdrawing the United States from the Joint Comprehensive Plan of Action (JCPOA) in May 2018. And it appears to be having the desired effect: Iran’s economy is in the midst of a deep recession as oil exports have nose-dived.

The United States essentially presented foreign countries and businesses with a choice. You can either do business with us, or you can do business with Iran. For most, the choice was simple.

The Trump administration hopes to leverage Iran’s weakened standing and desperation to coax them back to the negotiating table over their nuclear program and extract more concessions than the Obama administration was able to back in 2015.

Enter China.

When the Trump administration imposed what it called its “unprecedented U.S. economic pressure campaign” on Iran in November 2018, it granted eight countries—including China, India, South Korea, and Japan—six-month waivers, allowing them to continue buying Iranian oil for 180 days without incurring the economic wrath of the United States.

Secretary of State Mike Pompeo said the waivers were granted “only because [those countries] have demonstrated significant reductions in their crude oil and cooperation on many other fronts.” But the exemptions also provided Iran a little breathing room.

Now more than a year has passed, and the United States has punished Chinese companies multiple times for continuing to ship and import Iranian oil. Dan Katz had a great piece for the Atlantic Council a few months ago detailing China’s skirting of the sanctions.

And now that tensions between the United States and Iran seem to be ratcheting up near all-time highs, concerns have begun anew that China could help ease Tehran’s burden.

Speaking to Maria Bartiromo on Sunday Morning Futures yesterday, Mnuchin admitted that, while the administration has “cut off probably over 95 percent of [Iran’s] oil revenues,” it has not eliminated them entirely. “A big component of that is China.”

Mnuchin said he “sat down with the Chinese officials,” and that “they've cut off all of the state companies from buying oil.” But that’s difficult to verify and other senior Trump advisers, at the State Department and NSC, aren’t buying it. The concern is that China doesn’t mind seeing the U.S. preoccupied with Iran. Buying more oil from Iran not only provides relief to the Islamic Republic, it gives China additional leverage in its other talks with the U.S.

Worth Your Time

  • The lack of a shared set of facts is certainly a contributing factor to our deep partisan divides. How can you craft compromises and build bipartisan bridges when the two sides can’t even agree on what the problems we face are? A fractured media landscape has long been blamed for this divided reality, but, as Dana Goldstein’s latest piece in the New York Times illustrates, the split may start even earlier in a child’s life, with school history textbooks varying in tone and content across the country.

  • Like her mother before her, Anna Altman has spent a huge portion of her adult life beset by crushing migraines. Her essay about living with and through them in n+1 Magazine is chilling and full of insight, as she describes how chronic illnesses like migraines break down the barriers between what we see as sickness and health. Read it here

  • Conservative thinker and philosopher Roger Scruton passed away yesterday at the age of 75. Last month, he wrote this piece recapping his 2019—it’s worth the read.

Presented Without Comment

Something Fun

This 1993 letter from former Supreme Court Justice Anthony Kennedy inviting his colleagues Antonin Scalia and Byron White over to try out his new fax machine, is so sweet and quaint! “The thing works 24 hours a day.”

Spotted

At the Hertz Arena in Estero, Florida, home to the Florida Everblades minor league hockey team. A ... creative new frontier in political advertising from William Figlesthaler, a urologist from Naples, FL looking to replace retiring GOP Rep. Francis Rooney.

Toeing the Company Line

  • David’s latest edition of the faith-focused Sunday French Press is a must-read: a frank look at the dire circumstances behind the lives and deaths of despair that afflict so many people in our country, and a call for those more fortunate to examine not only what policy changes might help to heal these problems, but also what they themselves can do to lighten the burden of their fellow citizens.

  • In last week’s Friday G-File, Jonah has some grudging praise for Matt Gaetz and Rand Paul and a dire malediction against the “foul weather constitutionalists and statesmen” who make up much of the rest of Congress. (If that isn’t enough to pique your interest, there’s also a theory about a Suleimani set-up for you to chew over.)

  • We mentioned the Scott Lincicome piece on Trump’s trade policy earlier in the newsletter, but we really mean it. Give it a read.

Let Us Know

Mike Morrison claimed last week to have witnessed “one of the most iconic game show moments” of all time. 

That’s pretty great, but we figured we’d put our readers on the case. Send us the best game show moments you’ve ever seen, and we’ll feature some of our favorites later this week.

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), and Steve Hayes (@stephenfhayes).

Photograph of Bill Waugh of Des Moines, Iowa, leaning on his 1950 Farmall tractor at the 2019 Iowa State Fair by Chip Somodevilla/Getty Images.