Trump Flew to Beijing. A Trade Deal Came Out. Kind Of.

Late last week, President Trump traveled to Beijing for a two-day summit with Chinese President Xi Jinping — and he did not travel alone. Trump brought 17 of America's top CEOs with him, including Elon Musk of Tesla, Jensen Huang of Nvidia, Tim Cook of Apple, and Kelly Ortberg of Boeing. The fact that the heads of some of the most valuable companies in the world flew to Beijing alongside the President tells you everything about how much is riding on the US-China relationship. Both sides came out of the summit claiming to have won, with a number of agreements that they say would mark a dramatic shift in how the two countries do business.

What They Actually Agreed To

The two sides came out with a number of agreements at the meeting. China agreed to purchase $17 billion worth of agricultural products from the United States annually through 2028, including soybeans, beef, and poultry. China also agreed to a reported 200 aircraft deal with Boeing for commercial planes. This would be the first time in almost a decade that China would be purchasing aircraft from the United States. It is worth noting that Boeing's own CEO, Kelly Ortberg, was part of Trump's delegation in Beijing, which is part of why the reported aircraft deal drew so much attention. In a third area, China agreed to work to address the shortages of a number of minerals known as rare earths. These minerals are used in a variety of applications, from smartphones and other mobile devices to electric and hybrid vehicles as well as in a number of military applications. The two countries also agreed to establish a new board of trade to oversee the two countries' economic relations going forward.

Trump called them "fantastic trade deals" after the summit. China called them "positive developments."

The Problem

The two countries issued two separate statements summarizing the agreements. Reuters reported that there are only a few areas where both countries mention the same points. For example, the Boeing deal was missing from China's release of the agreements reached during the two-day summit. Boeing has not issued a press release stating that it reached a deal with Chinese airlines to sell 200 jets.

For a couple of years now the US and China have been in a large scale economic fight. These sorts of conflicts typically involve multiple meetings between the leaders of the two countries, and these meetings often generate a large amount of press coverage as the two sides try to convince the world that they are winning. In order to convince their populations that they have achieved their objectives, the two sides have a tendency to hype up the number of agreements that are reached during these meetings, and to leave out important details. In the end, much of the coverage of these meetings turns out to be hype with little substance.

So Do Your Prices Come Down?

In the end, this all comes down to one simple question: so do your prices come down? In our first blog on the trade war and why it raises prices, we discussed how the 145% tariffs on Chinese goods have thus far cost the average American household $1,500 per year in higher prices. And so the only real question is, as the trade war is seemingly coming to an end, will those higher prices see a corresponding decline.

That doesn't appear to be the case, though. Around 80-85% of the costs of the tariffs have already been absorbed somewhere in the supply chain, and those increased costs have been passed on to consumers. Inventory that has already been purchased by US retailers at the higher tariff prices is already sitting on shelves, and they will continue to sell that inventory at those higher prices until it is gone. Furthermore, even if both countries keep to their word, it will likely take months to see any real impact on consumer prices as supply chains get back on track.

The Bottom Line

Trump and Xi met in Beijing and came out with a list of deals. Some of them are real. Some of them are vague. Some of them, like the Boeing deal, China has not even confirmed. The trade war between the U.S. and China is not over, but it does seem to be cooling down. The catch is that even a real deal does not mean your grocery bill or your next phone drops in price tomorrow. Trade wars are easy to start and very slow to end.