This article originally posted on The Wall Street Journal on January 15, 2019.
The U.S. and China signed a “phase one” trade deal Wednesday—a meaningful victory in an economic conflict that’s been building for decades. The agreement is a credit to President Trump’s China strategy and a mark against his detractors.
When Mr. Trump took office, he quickly implemented targeted tariffs to pressure China into ending its abusive trade practices. Critics relentlessly assailed that decision. They contended that his “trade war” would crash the U.S. economy.
It turns out China depends more on exports to the U.S. than America does on Chinese imports. Where U.S. companies rerouted supply lines with the speed only free enterprise can attain, the tariffs wrecked the delicate balance of China’s state-managed markets. Last year China posted three straight quarters of around 6% annualized growth in gross domestic product. In the third quarter, it hit 6% flat, its weakest result in nearly three decades. The reality is likely worse than the official numbers. Economists have questioned the accuracy of China’s official economic data for years. Based on discussion with Asian business leaders and our personal experience, neither of us would be surprised if China’s real growth is in the 0% to minus-2% range.
The fight with China had to come eventually and Mr. Trump’s deregulation and tax reform helped position the U.S. economy to endure it. For years, Chinese corporations have brazenly stolen U.S. intellectual property and dumped goods on the American market in violation of U.S. law. Meanwhile, Beijing has regularly subsidized strategic industries such as telecommunications and energy, required foreign firms to transfer their technology in exchange for access to the Chinese market, and manipulated its currency to create artificial trade advantages for Chinese companies.
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