Financial markets often appear to be much smarter than the wonks observing them: On the very same day US and Chinese trade officials signed Donald Trump's "Phase One" agreement with much fanfare in the White House, equities traders all around the world just shrugged their shoulders.
In Asia, stock markets lost a little bit, while in Frankfurt Germany's blue-chip DAX index gained a negligible 0.1% — relief about the much-anticipated end to the US-China trade war looks certainly different.
Progress in name only
One reason for the lack of enthusiasm may be a growing realization that the trade deal is more appearance than substance. Admittedly, Trump has won assurances from Beijing that China will buy more US goods, to the tune of an extra $100 billion (€89.7 billion), including a significant volume of US-made agricultural products. And Chinese President Xi Jinping has pledged to honor US copyrights more and soften China's policy of forced technology transfer.
As if it were an excuse for the meager concessions, Beijing, in turn, has wielded its latest trade data saying Chinese exports to the US had actually slumped recently on the back of slower growth, and citing the sacrifice it is making by accepting less growth and subsequently less political stability.
But declaring "mission accomplished" would be all too easy.
As a matter of fact, the world in general, as well as China and the US in particular, are far from out of the woods on trade. The US president is certainly not in the mood to drop his erratic behavior, and Chinese leaders still appear hellbent on keeping all the aces up their sleeves. After all, it is their priority to defend China's political and economic system, as it strives for dominance in the new digital world.
Instead, the feted trade agreement signed on Wednesday just drags into broad daylight all the problems it wanted to resolve.
Sledgehammer approach
Trump's cure amounts to little more than the blatant disregard for multilateral agreements and global institutional frameworks such as the World Trade Organization (WTO). He wants to call the shots and dictate the terms of trade, for which unilateral sanctions against those who disagree has become his weapon of choice.
There's no better way to rephrase Trump's Phase One deal than with the words used by German economist Gabriel Felbermayr: "This is bilateral nonsense in a multilateral world." And the head of the European Chambers of Commerce in China, Jörg Wuttke, added sadly that the pact would pave the way toward "steered trade" between the world's biggest economies.
New times are dawning, in which the White House is increasingly hijacking regulations governing global trade. Over are the days when the arbitration panel of the WTO was the widely accepted place for resolving trade disputes. Trump's sledgehammer approach has ruined the house, which, admittedly, was no longer in perfect shape.
But gone with it are the benefits for all those countries that held up the WTO rules book and abided by it. Economists have calculated that the 180 WTO member countries were able to add a combined $855 billion to their economies annually, thanks to the trade body's regulatory efforts. An average of 4.51% of those countries' growth came from trade regulated by the organization.
Dampening collaboration worldwide
But such global achievements are now under threat, no matter what kind of individual trade deals Washington may be able to strike in the future. Moreover, Trump's methods limit the scope for multilateral conflict resolution also outside the realm of China's massive trade surplus — the conflicts in Iran and Iraq, public unrest in South America or populist governments in Hungary and Poland are waiting in the wings.
Without doubt, "America first" could be killing off much of the progress mankind has made in resolving its conflicts peacefully, and stands in the way toward overcoming the future problems it faces. What has been won is an extra $40 billion in revenue for American farmers — and possibly, Donald Trump's re-election. Perhaps that is all Phase One has been about from the beginning.