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How Leverage Works

Washington, D.C., January 21, 2020

Lost in much of the news coverage last week was that the U.S. signed Phase One of a new trade deal with China. More on that in a moment.

First let’s remember we've had major problems with that country, ranging from unfair trade practices to rampant intellectual property theft. It’s critical we recognize that China would have been nowhere near the negotiating table were it not for President Trump’s tough stance on their behavior, particularly in the form of tariffs.

While tariffs have caused some pain here in the U.S., they’ve provided the leverage necessary to make China realize it’s in their best interest to be an honorable trading partner with our country. That type of leverage is NOT possible when your trade policy is controlled by fear of what might happen should you stand up for yourself.

Now, back to Phase One of this new trade deal. Among other wins for the United States:

✅ Over the next two years, China will buy at least $200 billion more in U.S. products and services than they did in 2017.

✅ They agreed to eliminate more than 50 government-imposed restrictions on U.S. agricultural goods, making it easier for our farmers to sell into that country.

✅ China has also agreed to take steps to improve intellectual property protection and change their laws so that the criminal penalties for copyright theft are more of a deterrent than it is now.

Meanwhile, the tariffs will remain in place. Again, this is just Phase One of what should be multiple rounds of negotiations with China. We’re likely to see some tariff reductions on the table to help move China towards Phase Two of these negotiations. This is by no means a perfect deal, and critics will cherry-pick elements they don’t like as justification to dismiss its overriding benefits. Overall, however, Phase One is an excellent first step.

It would have never happened without the President’s willingness to create leverage.