An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year. Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year by agreement is calendar year 2020.

However, since the Agreement took effect in mid-February, my analysis has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). This is consistent with the position that USTR and USDA took in an interim report released on October 23 looking at China’s compliance with its purchase commitments in agriculture. “It is worth noting that the Phase One Agreement did not go into effect until February 14, 2020, and March is the first full month of its effect. That means that we have seen seven months of agreement sales.” U.S. Trade Representative’s Office and U.S. Department of Agriculture, Interim Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China, AGRICULTURAL TRADE, October 23, 2020, Page 1. The joint press release and interim report are embedded below.

For purposes of this post, I will look at the March-September data, but I will also reference January – September data.

The interim report from USTR and USDA indicated that for March-August, China had purchased 71% of the first year commitments (though obviously all had not been shipped). Looking at U.S. domestic exports for the March – September period and projecting for full year 2020, shows China meeting 82.73% of first year agriculture commitments if the first year is measured from March 2020-February 2021. Total Phase 1 products are projected at only 56.94% of first year commitments for the March-February year with manufactured goods at 50.46% and energy at 46.63%. If calendar year 2020 is examined, then total Phase 1 goods are projected to meet 51.40% with manufactured goods at 50.85%, agricultural products at 65.49% and energy goods at 35.33%. To meet first year commitments, China would have to import .3.47 times the product from the United States as was done in the first seven months in the next five months (October – February ) or 4.69 times the imports from the United States in the three month period of October – December if a calendar year basis is examined. Under neither time period, will first year U.S. domestic exports of goods to China meet the actual 2017 U.S. exports (although the U.S. gets close under current trends for the March-September period). Thus, none of the growth in exports above 2017 levels will be achieved in the first year.

U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. Total U.S. services exports to all countries are down 21.05% for the first nine months of 2020. Services trade data with China for 2020 is available for the first six months of 2020 and shows U.S. exports of services down41.51% from 2019 levels. 2019 US exports of services to China were $36.398 billion, slightly lower than 2017 US exports of services to China of $36.986 billion. See U.S. Department of Commerce, U.S. Bureau of the Census, Bureau of Economic Analysis, U.S. International Trade in Goods and Services, September 2020 (November 4, 2020). The Phase 1 Agreement with China has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels – to $49.786 billion). Thus, the limited data available indicate that U.S. services exports to China will likely miss 2017 levels by more than 40% and will obviously not show any gain above 2017.

Looking at total U.S. domestic exports of goods to China for the period March-September 2020, U.S. exports were $58.885 billion ($8.412 billion/month) compared to $65.073 billion in 2017 ($9.296 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the January-September 2020 period total U.S. exports were $71.402 billion ($7.934 billion/month) compared to $83.434 billion in 2017 ($9.270 billion/month).

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year). For the period March – September, 2020 figures for the 18 categories have decreased 5.73% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.59%, and total exports to China are down 9.51%. Looking at January – September figures for the 18 categories declined 12.02% while other U.S. domestic exports were down 20.26% from comparable levels in 2017. NOTE: compared to earlier posts, I have corrected the HS category for aircraft in the Phase 1 HS numbers which has resulted in usable figures for aircraft and reduced non-covered U.S. exports of goods.

Thus, the first seven months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $85.807 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $22.880 billion, for total U.S. domestic exports to China of $108.688 billion. This figure would be far below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $176.019 billion with noncovered products at estimated 2020 levels) . The same is true if one looks at January-September 2020 which suggest full year 2020 exports of Annex 6 goods of $77.464 billion, other exports of $25.324 billion, for total domestic exports in 2020 of $102.789 billion even further behind 2017.

To achieve the target level of U.S. exports in the October 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $107.389 billion ($21.478 billion/month) an amount that is 3.47 times the monthly rate of exports of the 18 categories to China in the March – September 2020 period ($6.187 billion/month).

If one uses January-September for comparison and for other US exports, with only three months data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $98.661 billion or $32.887 billion/month which is 5.69 times the average of $5.782 billion of the January-September period.

Chinese data on total imports from all countries (in U.S. dollars) for January-September show a decline of 3.1% from the first nine months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, September 2020 (in USD). China’s imports from the U.S. were up 0.2% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($91.448 billion vs. $71.402 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China). China’s imports from the U.S. continue to grow in October, with China showing imports from the U.S. up 3.1% in the first ten months.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-September 2017, March-September 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries are down in the first nine months of 2020 while up only 0.2% from the United States. Thus, while China has been increasing imports from the United States of some goods categories, it is extremely unlikely it will achieve the year one commitments of U.S. bodog sportsbook review goods regardless of whether the first year is the calendar year 2020 or the twelve months March 2020 – February 2021.

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest. With a change of U.S. Administrations on January 20, 2021 and an announced focus on domestic challenges in the U.S., it is unclear what bilateral challenges between the U.S. and China will be addressed in 2021.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement and some improvements in exports of U.S. agricultural goods, there has been very little forward movement in expanding U.S. exports of goods to China in fact and a sharp decline in U.S. exports of services to China.

With the process of selecting a new Director-General for the World Trade Organization in limbo following the third round of consultations and the announcement by the Trump Administration of an inability to join a consensus on the Nigerian candidate, Dr. Ngozi Okonjo-Iweala, it is unclear when and if the WTO will be able to engage in meaningful reform efforts in the near term such that the large bilateral concerns between the U.S. and China can be brought back under the WTO or whether the world is in for many years of bilateral tensions with actions outside of the system the norm and not the exception.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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But, at some point—like now, for instance—the unity we pro‐​trade, pro‐​globalization voices find in our opposition to Trump’s trade policy must give way to a serious debate about what, exactly, trade policy toward China should look like after Trump. Unless the Biden folks are considering some form of continuation of Trump’s Phase One deal—a devastatingly bad idea that Biden should disavow—there is little purpose (other than rubbing Trump’s nose in it) in demonstrating how the objectives have not been met.

It’s easy to criticize policies you don’t like, but much harder to move from favored policy generalities to specifics. We need to start putting some meat on the bones of those general slogans—aspirational statements like “we must work with allies,” “restore U.S. leadership,” and “reform the World Trade Organization”—that have been bandied about as placeholders for specific, realistic policy objectives, strategies, and tactics.

If you think we must “work with allies” to try to rein in some of Beijing’s objectionable behavior, then the success or failure of the Phase One trade deal is irrelevant. The deal must be terminated, period. Why? Because the deal sanctions discrimination against European, Japanese, Korean, Canadian, Australian, Indian, and all other countries’ exporters. It is an arrangement that formally puts U.S. suppliers on a more favorable footing with Chinese buyers—that is, with the Chinese government. Working with allies requires a globalist, not a nationalist approach.

How can we effectively “work with allies” to discipline China’s behavior while, at the same time, expecting those allies to accept being squeezed out of the China market by our bilateral trade deal? We can’t because the trade deal is the antithesis of working with allies. If the United States and the European Union are going to have any chance of showing a united front against a Chinese government that has succeeded over the years in driving wedge’s between the western powers, the Phase One deal—that ill‐​conceived edifice of America‐​first nationalism—cannot stand. So why measure and make such a big deal about progress or the lack thereof…unless Biden’s team is contemplating continuity?

If you think the United States should “show leadership” or “lead on trade,” as the tweets echo ad nauseum without elaborating on exactly where to lead, then U.S. policymakers and opinion leaders should eschew and speak out against these kinds of discriminatory, managed trade deals. Otherwise, U.S. leadership will continue to set bad examples, encouraging other countries to emulate our transactional, bilateral, deal cutting. We should want the United States to lead on trade, but in a liberalizing, non‐​discriminatory direction. Right, Joe?

If you consider the Trump administration’s assault on the World Trade Organization—its strangling of the Appellate Body, threats to withdraw, and refusal to endorse a new Director General—to be terrible mistakes and believe the United States should commit to reforming the World Trade Organization, then you must regard the U.S.-China trade war and the Phase One trade deal, both conducted in violation of the rules of the WTO, as ongoing impediments to reform.

Whether the Phase One trade deal has lived up to its objectives is, arguably, a question of empirical interest at most—unless Biden’s team is considering some form of continuation. Of course that choice would short‐​circuit the general goals of working with allies, showing leadership, and reforming the WTO.

Dan Ikenson is director of Cato’s Herbert A. Stiefel Center for Trade Policy Studies, where he coordinates and conducts research on all manner of international trade and investment policy.

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An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year. Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year is calendar year 2020. However, since the Agreement took effect in mid-February, my analysis has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). Including January and February data makes the achieving of first year objectives even more improbable as monthly U.S. domestic exports to China would have to be more than four times (4.07) the monthly average in January-August (compared to 2.41 times the monthly average if looking just at March-August) to meet a first year goal of $184.009 billion (which assumes U.S. exports of products not covered by Annex 6.1 are at 2017 levels).

A six month review of progress on the overall Phase 1 Agreement by the U.S. and China was held by phone on August 24, 2020, with U.S. noting that both parties are committed to ensuring the success of the agreement, including the purchases of U.S. goods.

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and July 2020). Moreover, Amb. Lighthizer has testified to Congress that China has made some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time, although there are some increases in soybeans reported in August. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – August 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement. It is even further behind if the January-August period is considered.

Looking at total U.S. domestic exports to China for the period March-August 2020, U.S. exports were $48.534 billion ($8.089 billion/month) compared to $55.019 billion in 2017 ($9.170 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the JanuaryAugust 2020 period total U.S. exports were $61.051 billion ($7.631 billion/month) compared to $73.379 billion in 2017 ($9.172 billion/month).

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49.026 billion in 2017 (full year). For the period March – August, 2020 figures for the 18 categories have increased 8.92% from comparable levels in 2017 (with a large increase in August, as March-July had shown 4.19%). Noncovered products (which face significant tariws in China based on retaliation for US 301 duties) have declined 37.85%, and total exports to China are down 11.79%. Looking at January – August, figures for the 18 categories declined 2.09% while other U.S. domestic exports were down 36.98% from comparable levels in 2017.

Thus, the first six months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $78.663 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $30.469 billion, for total U.S. domestic exports to China of $109.132 billion. This figure would be far below 2017, slightly below 2018 and 15.98% above 2019. It is obviously dramatically below the target of $184.0 billion. The same is true if one looks at January-August 2020 which suggest full year 2020 exports of Annex 6 goods of $68.527 billion, other exports of $30.896 billion, for total domestic exports in 2020 of $99.423 billion even further behind 2017 and 2018 and a smaller increase from the depressed 2019 data.

Even accepting the steep decline in non-covered goods using March-August as the relevant data, the first year should result in total U.S. domestic exports of $165.452 billion if the increase in covered goods is achieved — an amount 51.61% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the September 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $101.589 billion ($16.931 billion/month) an amount that is 3.04 times the monthly rate of exports of the 18 categories to China in the March-August 2020 period ($5.566 billion/month).

If one uses January-August for comparison and for other US exports, 2020 should $165.879 billion as the commitment level which is higher than estimated 2020 figures based on the first eight months of 66.84%. With only four months data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $93.430 billion or $23.357 billion/month which is 4.50 times the average of $5.194 billion of the January-August period.

Chinese data on total imports from all countries (in U.S. dollars) for January-August show a decline of 5.2% from the first eight months of 2019. http://english.customs.gov.cn/statics/report/monthly.html . General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, August 2020 (in USD). China’s imports from the U.S. were down 2.9% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($78.241 billion vs. $61.051 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China).

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for MarchAugust 2017, March-August 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

• If one used January-August, manufactured goods were down 2.89% from 2017 levels and require $48.138 billion to be exported in the remaining four months of 2020 to reach the first year commitments ($12.035 billion/month). For agricultural goods, U.S. exports were down 6.86% from 2017 levels and require $23.744 billion to be exported in the remaining four months of 2020 to reach the first year commitments ($5.936 billion/month). On energy, U.S. exports were up 16.32% over 2017 levels and require exports of $21.547 billion in the remaining four months to reach first year commitments ($5.387 billion/month). For all Annex 6.1 goods, U.S. exports in the January-August period were down 2.09% with additional exports to meet first year commitments equal to $93.430 billion ($23.357 billion/month).HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-August 2020 period based on U.bodog casino S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
• The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first eight months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen, but seems highly unlikely despite the position taken by the U.S. and by improved purchases of some U.S. goods in August.

Conclusion

As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has lex other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement as reviewed by USTR following the six month review call between the parties, there has been very little forward movement in expanding U.S. exports to China in fact. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the very depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $56.32 – 74.88 billion (if use March-August) or by $66.46-84.58 (if use January-August). By back loading purchases of various U.S. agricultural products, China has projected to the U.S. greater efforts to meet purchase targets, and yet has done relatively little to effectuate expanded imports from the U.S. ahead of Presidential elections, now just a little more than three weeks away.

With the process of selecting a new Director-General for the World Trade Organization now down to selecting between the two candidates who have advanced to the final round of consultations, it is unclear when and if the WTO will be able to engage in meaningful reform efforts such that the large bilateral concerns between the U.S. and China can be brought back under the WTO or whether the world is in for many years of bilateral tensions with actions outside of the system the norm and not the exception.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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And critics of his trade policy argue Trump’s “magical thinking” created little chance for success.

New figures out Tuesday show the U.S. trade gap is on track to exceed $600 billion this year. That would be the highest since 2008, just before the global financial crisis.

The monthly deficit in U.S. goods trade with all other countries set a record high in August at more than $83 billion.

Trump has blamed the trade deficit on bad trade deals negotiated by his predecessors and unfair trade practices by other countries, but most economists disagree with that explanation.

“We have almost an $800 billion a year trade deficit with other nations,” Trump said in November 2017, after returning from his first trip to Asia as president. “Unacceptable. We are going to start whittling that down and as fast as possible.”

In those 2017 comments, Trump seemed to be referring to just the goods trade deficit while ignoring the surplus the U.S. enjoys in services trade. The combined goods and services deficit in 2017 was $514 billion, reflecting a nearly $800 billion goods deficit as well as a $286 billion services surplus. This year, the goods trade deficit is likely to exceed $850 billion.

The trade deficit measures the difference between what the U.S. imports and exports. The powerful U.S. economy sucks up goods from around the world, resulting in an annual trade deficit that has grown dramatically from a mere $6 billion in 1975.

A variety of factors contributed to Trump’s failure to eliminate the trade gap, which White House trade adviser Peter Navarro predicted in 2016 could be erased in one or two years.

Overall trade remains depressed compared to year-ago levels because of the coronavirus pandemic.

But the massive U.S. government stimulus payments to businesses and consumers have helped U.S. imports recover faster than U.S. exports. That explains why the monthly goods deficit has increased from the average level of $73.3 billion in 2019.

However, even without the pandemic, Trump’s practice of piling tariffs on China and selected other products like steel and aluminum was never going to turn around the deficit, most economists agree.

“Short-term fixes like tariffs don’t work,” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics and professor of economics at Syracuse University. “It’s magical thinking.”

The large U.S. trade deficit is fundamentally driven by larger economic factors — like the fact Americans spend more than they save and have to borrow from abroad to finance the difference, Lovely said.

Trump’s $1.5 trillion tax cut in 2017 contributed to that problem by running up the U.S. budget deficit. This year, Congress has approved more than $3 trillion in additional spending to help the U.S. economy recover from the coronavirus pandemic, tripling the budget deficit to $3.3 trillion and pulling the trade deficit along, she said.

U.S. Trade Representative Robert Lighthizer, in a statement on Tuesday, defended the administration’s trade actions and attributed this year’s rise in the deficit to the strength of the U.S. recovery from the pandemic and investors buying gold as a hedge against the crisis.

“In spite of the pandemic, our goods deficit is down 2.4 percent year-to-date,” Lighthizer said. “The goods deficit would have decreased by at least 6 percent but for a large spike in gold imports reflecting risk-hedging strategies during the pandemic, not underlying economics.”

He said a 19-percent fall so far this year in the U.S. services surplus due largely to reduced tourism, travel and transport also helped widen the overall deficit. “As other countries recover and reopen, we expect both imports and exports to improve substantially,” Lighthizer said.

Still, although Trump failed to reduce the overall trade deficit, his tariffs helped change the composition of the deficit, which is important, said Michael Stumo, chief executive of the Coalition for a Prosperous America, a Trump-friendly trade group.

Looking at trade in 2019, the last full year of data, the overall U.S. trade deficit fell by less than 1 percent from the previous year to $577 billion. However, the bilateral trade deficit with China fell by a much more impressive 17 percent to $345 billion as importers turned to other countries such as Mexico, Vietnam, Taiwan, South Korea, Japan and members of the EU.

Imports also supplied a slightly smaller share of U.S. demand for manufactured goods in 2019 as measured by CPA’s “reshoring index” which fell to 30.6 percent, from 31.2 percent in 2018.

That may seem like a tiny change, but the U.S. consumed about $7.1 trillion worth of manufactured goods in 2019. So even a small increase in the U.S. share of that market can help create thousands of new jobs, Stumo said.

But for Trump to fundamentally reduce the trade deficit, he needed to address misaligned currency rates because the strong dollar makes it hard for U.S. exporters to compete against other suppliers, Stumo said.

On that front, he ran into opposition from Wall Street money houses, who fear any aggressive moves to deal with currency because it hurts their bottom line, he said.

“A huge, excessively high part of our economy is finance and they’ll fight it,” Stumo said. “We’d like finance to be strong, but just not that big a part of our economy. We need a little bit more goods production.”

Trump’s “phase one” trade deal with China does contain a chapter which, for the first time in any trade agreement, contains enforceable rules against currency manipulation. While some trade experts worry that could open the door for renewed U.S. trade actions against China, others see the pact as more of a fig leaf.

“We would say one of the big failures of the Trump administration with respect to trade policy is the failure to address currency misalignment in any kind of meaningful way,” said Thea Lee, president of the Economic Policy Institute, a left-leaning think tank aligned with union groups. “Putting a couple of sentences into the deal, but without a clear road map as to how it’s going to be instrumentalized, doesn’t really do very much.”

Lee also faults Trump for failing to pass a huge new infrastructure bill to create more jobs in the United States, as he promised during his 2016 campaign, and for approving a set of tax reforms “that took us in exactly the wrong direction by incentivizing and accelerating offshoring.”

Trump’s revised NAFTA agreement with Mexico and Canada does include strong protections for workers rights, which helped the pact win overwhelming approval in the Democratic-controlled House. But the fact that labor concerns were not addressed in the China agreement “just shows that the Trump administration is not driven by any principles in this area, but simply by political expediency,” Lee said.

The administration hails China’s agreement as part of the phase one trade deal to purchase $200 billion more of U.S. goods and services in 2020 and 2021, compared with the record it set in 2017.

But the data released on Tuesday shows that China is well behind on that goal. During the first eight months of this year, it had imported just $69.5 billion worth of U.S. farm and manufactured goods, compared to $80.2 billion in the same period in 2017.

U.S. farmers were hit so hard by Trump’s tariff war with China that his administration doled out more than $20 billion in emergency aid payments to help cushion the blow.

U.S. farm exports to China had reached as high as $25 billion annually a few years before Trump was elected. But they plummeted to $6.8 billion in fiscal 2019 after Beijing retaliated against Trump’s tariffs by raising its own duties on U.S. farm exports.

Now, even with the purchase commitments contained in the phase one trade deal, USDA forecasts farm exports to China in the current fiscal year that began on Oct. 1 at just $18.5 billion. That’s below the $21.8 billion during Trump’s first year in office.

The U.S. agricultural trade surplus, long a point of pride for farmers, has also dwindled under Trump. It is projected this fiscal year at just $4.5 billion, down from $21.1 billion in fiscal 2017.

Even some longtime China hawks fault Trump’s handling of trade.

The president’s decision to take Beijing on by himself, instead of working with allies such as the European Union and Japan, meant that the phase one trade deal failed to address many of the most serious concerns about China’s trade practices, said Mike Wessel, who has served on the U.S.-China Economic and Security Review, a watchdog panel created by Congress, since it began in the early 2000s.

“We certainly have to advance U.S. interests, but it’d be a lot better and more productive if we did it together,” Wessel said.

Trump also failed to implement domestic policies that would encourage production of manufactured goods in the United States, instead of other countries, Wessel argued.

“China has an integrated structure to achieve the goals laid out in its ‘Made in China 2025’ plan. It’s a holistic whole of government approach. We don’t have anything comparable,” Wessel said.

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On climate change, Trump’s dismal legacy would be quickly wiped out. Biden has pledged to rejoin the 2015 Paris climate agreement “on day one” of his administration, achieve climate neutrality by 2050, and lead a global coalition against the climate threat. If this happens, Trump’s noisy denial of scientific evidence will be remembered as a minor blip.

In a surprisingly large number of domains, Trump has done little or has behaved too erratically to leave an imprint. Global financial regulation has not changed fundamentally during his term, and his administration has flip-flopped regarding the fight against tax havens. The International Monetary Fund and the World Bank have carried on working more or less smoothly, and Trump’s furious tweeting did not prevent the US Federal Reserve from continuing to act responsibly, including by providing dollar liquidity to key international partners during the COVID-19 crisis. True, Trump has repeatedly spoiled international summits, leaving his fellow leaders flummoxed. But such behaviour has been more embarrassing than consequential.

In contrast, Trump will be remembered for his trade initiatives. Although it has always been difficult to determine the real aims of an administration beset by infighting, three key goals now stand out: reshoring of manufacturing, an overhaul of the World Trade Organisation and economic decoupling from China. Each objective is likely to outlast Trump’s tenure, at least in part.

Reshoring looked like a costly fantasy four years ago, and it still is in many respects. As my Peterson Institute colleague Chad Bown has documented, Trump’s chaotic trade war with the world has often hurt US economic interests. But reshoring as a policy objective has gained new life after the pandemic exposed the vulnerability entailed by depending exclusively on global sourcing. Biden has endorsed the idea and ‘economic sovereignty’ – whatever that means – is now everywhere the new mantra.

US Trade Representative Robert Lighthizer claims that a “reset” of the WTO has been a high priority for the administration. If so, it has made some headway. bodog online casino The other G7 countries now share the long-standing US dissatisfaction with the WTO’s leniency toward China’s government subsidies and weak intellectual-property protection. There is also a recognition that some US grievances against WTO dispute-settlement procedures (and in particular the so-called Appellate Body) are valid. But whether the battle ends with a reset or a decomposition of the multilateral trading system remains to be seen.

The major watershed is US-China relations. Although bilateral tensions were apparent before Trump’s election in 2016, nobody spoke of a ‘decoupling’ of two countries that had become tightly integrated economically and financially. Four years later, decoupling has begun on several fronts, from technology to trade and investment. Nowadays, US Republicans and Democrats alike view bilateral economic ties through a geopolitical lens.

It is not clear whether Trump merely precipitated a rupture that was already in the making. He is not responsible for President Xi Jinping’s authoritarian assertiveness, and he did not devise the Belt and Road Initiative, China’s massive transnational infrastructure and credit programme. But it was Trump who ditched Barack Obama’s carefully balanced China strategy in favour of a brutally adversarial stance that left no scope for events to take a different course. Whatever the cause of decoupling, there won’t be a return to the status quo.

A Biden administration would also not find it easy to reach the candidate’s aim of restoring ties with US allies, like-minded democracies, and partners around the world. Until Trump’s presidency, much of the world had become accustomed to regarding the US as the main architect of the international economic system. As Adam Posen, also of the Peterson Institute, has argued, the US was a sort of chair for life of a global club whose rules it had largely conceived but still had to abide by. The US could collect dues but was also bound by duties, and had to forge a consensus on amendments to the rules.

Trump’s trademark has been to reject this approach and treat all other countries as competitors, rivals or enemies, his overriding objective being to maximise the rent that the US can extract from its still-dominant economic position. America First epitomises his explicit promotion of a narrow definition of national interest.

Even if the US under Biden were willing to make again credible international commitments, its outlook may change lastingly. Former Trump adviser Nadia Schadlow has argued that Trump’s tenure will be remembered as the moment when the world pivoted away from a unipolar paradigm to one of great-power competition.

It is by no means obvious that if Biden wins, he will be able to restore the trust of America’s international partners. For all its aberrations, Trump’s presidency may indicate a deeper US reaction to the shift in global economic power, and reflect the American public’s rejection of the foreign responsibilities their country endorsed for three-quarters of a century. The old belief among US allies and economic partners that Americans will “ultimately do the right thing,” as Winston Churchill reputedly said, may be gone.

Anyhow, Trump’s peculiar behaviour has made it easy for America’s allies to postpone hard choices. That seems particularly true of Europe. A Biden-led US might seem like a familiar partner to most European leaders. But if it asked them to take sides in the confrontation with China, Europe would no longer be able to put off its own moment of decision.

Jean Pisani-Ferry holds the Tommaso Padoa Schioppa chair of the European University Institute in Florence and is a Senior Fellow at Bruegel, the European think tank. He is also a professor of economics with Sciences Po (Paris) and the Hertie School of Governance (Berlin).

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This PIIE Chart, originally published on May 18, 2020, tracks China’s monthly purchases of US goods covered by the phase one deal between the United States and China.

Hexuan Li provided outstanding data assistance, and William Melancon and Oliver Ward assisted with graphics.

On February 14, 2020, the Economic and Trade Agreement Between the United States of America and the People’s Republic Of China: Phase One went into effect. China agreed to expand purchases of certain US goods and services by a combined $200 billion over 2020 and 2021 from 2017 levels. This PIIE Chart tracks China’s monthly purchases of US goods covered by the deal, relying on data from both Chinese customs (China’s imports) and the US Census Bureau (US exports). It then compares those purchases with the legal agreement’s annual targets, prorated on a monthly basis, above two baseline scenarios (see methodology below). As set out in the legal agreement, one 2017 baseline scenario allows for use of US export statistics and the other allows for Chinese import statistics. Note that prorating the 2020 year-end targets to a monthly basis is for illustrative purposes only. Nothing in the text of the agreement indicates China must meet anything other than the year-end targets.

According to the agreement, China has committed to purchase no less than an additional $63.9 billion of covered goods from the United States by the end of 2020 relative to these 2017 baselines. Defining the 2017 baseline using Chinese import statistics implies a 2020 purchase target of $172.7 billion (red in panel a). Defining the 2017 baseline using US export statistics implies a 2020 target of $142.7 billion (blue in panel a).

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Through August 2020, China’s year-to-date total imports of covered products from the United States were $56.1 billion, compared with a prorated year-to-date target of $115.1 billion. Over the same period, US exports to China of covered products were $47.6 billion, compared with a year-to-date target of $95.1 billion. Through the first eight months of 2020, China’s purchases of all covered products were thus only at 50 percent (US exports) or 49 percent (Chinese imports) of their year-to-date targets.

For covered agricultural products, China committed to an additional $12.5 billion of purchases in 2020 above 2017 levels, implying an annual target of $36.6 billion (Chinese imports, panel b) and $33.4 billion (US exports, panel c). Through August 2020, China’s imports of covered agricultural products were $11.0 billion, compared with a year-to-date target of $24.4 billion. Over the same period, US exports of covered agricultural products were $9.6 billion, compared with a year-to date target of $22.3 billion. Through the first eight months of 2020, China’s purchases were thus only at 43 percent (US exports) or 45 percent (Chinese imports) of their year-to-date targets.

For covered manufactured products, China committed to an additional $32.9 billion of purchases in 2020 above 2017 levels, implying an annual target of $110.8 billion (Chinese imports) and $83.1 billion (US exports). Through August 2020, China’s imports of covered manufactured products were $41.5 billion, compared with a year-to-date target of $73.9 billion. Over the same period, US exports of covered manufactured products were $33.2 billion, compared with a year-to-date target of $55.4 billion. Through the first eight months of 2020, China’s purchases were thus only at 60 percent (US exports) or 56 percent (Chinese imports) of their year-to-date targets.

For covered energy products, China committed to an additional $18.5 billion of purchases in 2020 above 2017 levels, implying an annual target of $25.3 billion (Chinese imports) and $26.1 billion (US exports). Through August 2020, China’s imports of covered energy products were $3.5 billion, compared with a year-to-date target of $16.9 billion. Over the same period, US exports of covered energy products were $4.8 billion, compared with a year-to-date target of $17.4 billion. Through the first eight months of 2020, China’s purchases were thus only at 27 percent (US exports) or 21 percent (Chinese imports) of their year-to-date targets.

For all uncovered products—making up 30 percent of China’s total goods imports from the United States and 39 percent of US total goods exports to China in 2017—the phase one agreement does not include a legal target. Through August 2020, China’s imports of all uncovered products from the United States were $22.2 billion, 28 percent lower than over the same period in 2017. (US exports of all uncovered products to China through July were $19.1 billion, 30 percent lower than over the same period in 2017. The August data for uncovered products will be available on October 6, 2020.)

Though the agreement also sets targets for China’s purchases of certain traded services from the United States, those data are not reported on a monthly basis and are not covered here. The agreement also contains targets for 2021 not illustrated here.

Note on Data Release: This update is based on August 2020 data released on September 25, 2020 for both Chinese imports and US exports. (The preliminary data on US exports to China subject to monitoring under the agreement are now released prior to the total release scheduled for October 6, 2020.) The next update will be based on September 2020 data to be released on October 25, 2020 (Chinese imports) and October 26, 2020 (US exports).

METHODOLOGICAL APPROACH

Assessing progress toward meeting the phase one targets for goods trade requires information from both US export statistics and Chinese import statistics, given that the agreement’s Chapter 6, Article 6.2.6 states “Official Chinese trade data and official US trade data shall be used to determine whether this Chapter has been implemented.” One implication is that there are two sets of monthly data to track (Chinese imports and US exports). A second is that there are two different annual, and hence monthly, targets, since the 2017 baseline level of Chinese imports differs from the 2017 baseline level of US exports. Finally, the products covered by the purchase commitments are set out at the 4-, 6-, 8-, or 10-digit level in the agreement’s Attachment to Annex 6.1; these are then mapped to the US or Chinese trade statistics for 2017 and for 2020.

For US goods exports, the agreement is estimated to cover products that made up $78.8 billion, or 61 percent, of total US goods exports to China ($129.8 billion) in 2017. Of the 2017 total exports of covered products, exports worth $20.9 billion were in agriculture, $50.2 billion were in manufacturing, and $7.6 billion were in energy. Products uncovered by the agreement—and thus with no targets for 2020—made up 39 percent ($51 billion) of total US goods exports to China in 2017.

For Chinese goods imports, the deal is estimated to cover products that made up $108.8 billion, or 70 percent, of total Chinese goods imports from the United States ($154.4 billion) in 2017. Of the 2017 total imports of covered products, imports worth $24.1 billion were in agriculture, $77.9 billion were in manufacturing, and $6.8 billion were in energy. Uncovered products made up 30 percent ($45.6 billion) of total Chinese goods imports from the United States in 2017.

For both the US export data and the Chinese import data, the 2020 phase one targets of additional trade (on top of 2017 baseline) are $12.5 billion (agriculture), $32.9 billion (manufactured goods), and $18.5 billion (energy). These targets are found in the agreement’s Annex 6.1.

Chad P. Bown, Reginald Jones Senior Fellow since March 2018, joined the Peterson Institute for International Economics as a senior fellow in April 2016. His research examines international trade laws and institutions, trade negotiations, and trade disputes. With Soumaya Keynes, he cohosts Trade Talks, a weekly podcast on the economics of international trade policy.

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Prior posts on the U.S.-China Phase 1 Agreement can be found here: August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year (assumed to be February 14, 2020-February 13, 2021).

A six month review of progress on the overall Phase 1 Agreement by the U.S. and China was held by phone on August 24, 2020. The U.S. Trade Representative’s summary of the call is copied below and can be found here – https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/august/statement-call-between-united-states-and-china.

“Statement on Call Between the United States and China”

08/24/2020

“Washington, DC – Ambassador Lighthizer and Secretary Mnuchin participated in a regularly scheduled call this evening with China’s Vice Premier Liu He to discuss implementation of the historic Phase One Agreement between the United States and China. The parties addressed steps that China has taken to effectuate structural changes called for by the
Agreement that will ensure greater protection for intellectual property rights, remove impediments to American companies in the areas of financial services and agriculture, and eliminate forced technology transfer. The parties also discussed the significant increases in purchases of U.S. products by China as well as future actions needed to implement the agreement. Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and July 2020). Moreover, Amb. Lighthizer has testified to Congress that China has made some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – July 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement.

Looking at total U.S. domestic exports to China for the period March-July 2020, U.S. exports were $38.963 billion ($7.792 billion/month) compared to $45.054 billion in 2017 ($9.011 billion/month). These include both products covered by the Annex 6.1 commitments and other products.

Looking at total U.S. domestic exports to China for the period March-July 2020, U.S. exports were $38.963 billion ($7.792 billion/month) compared to $45.054 billion in 2017 ($9.011 billion/month). These include both products covered by the Annex 6.1 commitments and other products.

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49 billion in 2017 (full year). For the period March – July, 2020 figures for the 18 categories have increased 4.19% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 36.10%, and total exports to China are down 13.52%.

Thus, the first five months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports of the Annex 6 goods will be $71.496 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $31.306 billion, for total U.S. domestic exports to China of $102.802 billion. This figure would be far below 2017, below 2018 and just 9.25% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $166.321 billion if the increase in covered goods is achieved — an amount 61.79% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the August 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $108.705 billion ($15.529 billion/month) an amount nearly three times the monthly rate of exports of the 18 categories to China in the March – July 2020 period ($5.262 billion/month).

Chinese data on total imports from all countries (in U.S. dollars) for January-July show a decline of 5.7% from the first seven months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, July 2020 (in USD). China’s imports from the U.S. were down 3.5% during the same time bodog online casino period. Total U.S. domestic exports to China are down slightly more for the first seven months vs. 2019, 4.151%. China data for August are also available. Total imports into China for the first eight months of 2020 are down 5.2%, those from the United States down 2.9%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-July 2017, March-Julye 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

• HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-July 2020 period based on U.bodog casino S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
• The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first eight months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen, but seems highly unlikely despite the position taken by the U.S.

Conclusion

The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and will not begin before 2021 at the earliest.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $63.5 – 81.2 billion. By back loading purchases of various U.S. agricultural products, China can project greater efforts to meet purchase targets and yet not actually take the goods ahead of the forthcoming Presidential elections.

With the process of selecting a new Director-General for the World Trade Organization entering the final phase where Members will be winnowing down the list of eight candidates to one which hopefully will receive consensus support by early November, it is unclear when and if the WTO will be able to engage in meaningful reform efforts such that the large bilateral concerns between the U.S. and China can be brought back under the WTO or whether the world is in for many years of bilateral tensions with actions outside of the system the norm and not the exception.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/;

May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/;

January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/;

January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.

An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.

While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, the U.S. continues to report that China intends to honor its purchase commitments in this first year (February 14, 2020-February 13, 2021).

As reviewed in earlier posts, some goods categories have data issues on the U.S. side (aircraft (orders and deliveries) show $0 exports for the entire period between 2017 and June 2020). Moreover, Amb. Lighthizer has testified to Congress that China is making some large agricultural purchases for shipments later in the year that don’t show up in the U.S. export data at the present time. Similarly, U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. However, services trade data with China for 2020 are not yet available. Total U.S. exports of services in the first half of 2020 to all countries was down 14.83%. Travel services were down more sharply, 46.32%. While the Phase 1 Agreement has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels), the data doesn’t presently exist to measure progress on services under the Phase 1 Agreement, though it is believed that China is far behind on its commitments to increase U.S. exports of services.

Looking just at U.S. domestic export data for goods to China for the period March – June 2020, China is far behind meeting the ambitious purchase commitments made with the United States for the first year of the Agreement.

Looking at total U.S. domestic exports to China for the period March-June 2020, U.S. exports were $31.0 billion ($7.761 billion/month) compared to $35.922 billion in 2017 ($.8.98 billion/month). In fact, 2018 shows the highest March-June exports to China ($40.998 billion ($10.249 billion/month). The March-June 2020 figures are below even 2019 which were $32.425 billion ($8.106 billion/month).

Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.

Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $49.026 billion in 2017 (full year). For the period March – June, 2020 figures for the 18 categories have increased 0.98% from comparable levels in 2017. Non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 33.30%, and total exports to China are down 13.58%.

Thus, the first four months of the 1st year of the U.S.-China Phase 1 Agreement suggest that U.S. domestic exports will be $72.934 billion if the full year shows the same 0.98% increase over 2017; non-covered products would be $32.701 billion, for total U.S. domestic exports to China of $105.635 billion. This figure would be far below 2017, below 2018 and just 12.26% above 2019. It is obviously dramatically below the target of $184.0 billion.

Even accepting the steep decline in non-covered goods, the first year should result in total U.S. domestic exports of $167.683 billion if the increase in covered goods is achieved — an amount 58.7% greater than current trends for total U.S. exports. To achieve that level of U.S. exports in the July 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $114.114 billion ($14.264 billion/month) an amount more than twice the monthly rate of exports of the 18 categories to China in the March – June 2020 period.

Chinese data on total imports from all countries (in U.S. dollars) for January-June show a decline of 6.4% from the first six months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, June 2020 (in USD). China’s imports from the U.S. were down 4.8% during the same time bodog online casino period. Total U.S. domestic exports to China are down slightly more for the first six months vs. 2019, -4.99%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-June 2017, March-June 20 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

• HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-June 2020 period based on U.bodog casino S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
• The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first six months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen.

Conclusion

The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun and almost certainly will not begin before 2021.

While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement, there has been very little forward movement in expanding U.S. exports to China. Indeed with the sharp contraction of U.S. exports of products not included in Annex 6.1 of the Phase 1 Agreement, the current trend lines will have U.S. total exports of goods to China coming in lower than was true in either 2017 or 2018 and only somewhat higher than the depressed 2019 figures. More importantly, the trend line of U.S. domestic exports would result in China missing its first year target for purchases of U.S. goods by $62 – 78.4 billion.

The bilateral relationship is under increasing strains reflecting both reactions to China’s actions vis-a-vis Hong Kong, the disagreements on the COVID-19 pandemic, ongoing concerns in the United States about possible cyber espionage by Chinese entities which has resulted in the closure of a Chinese consulate in the U.S. and a retaliatory closure of one of the U.S. consulates in China, among other current flash points.

In such circumstances, it is hard to know whether China will fully implement the bilateral agreement or be willing to move forward on a Phase 2 negotiation. While the January – June data support a possible lack of interest by China in fulfilling the purchase agreement provisions, China has released its July data which show a significant increase in imports from the U.S. to $11.276 billion in July which is at least an improvement over the monthly figures for March-June ($7.761 billion/month). On the prospect for interest by China in addressing a Phase 2 negotiation, U.S. intelligence has indicated that China is hoping for a regime change in the U.S. through the November elections, a reading, if correct, which supports a likely wait-and-see approach on any renewed interest in negotiations.

Similarly, it is hard to know if the U.S. will view the agreement as being implemented by China sufficiently to move to the next stage. As the U.S. Administration is in full campaign mode, it is likely the U.S. Administration perceives more electoral value in identifying practices of concern by China than pursuing forward movement on any Phase 2 negotiations. The long distance that exists between current export levels and Agreement targets could well lead the U.S. to view the agreement on the subject of expanded exports to China as not being met and to pursue tariff action under the Agreement. September or October would be the likely months if there are not significant increases in trade volume. As noted, China reports significantly increased imports from the U.S. in July and USTR Lighthizer has indicated that there are large purchases of agricultural goods for late year delivery that are not reflected in U.S. export data. Thus, facts on the ground may lead to focusing Administration concerns with China on issues not involving the Phase 1 Agreement.

What is clear is that trade frictions between the world’s two largest economies are serious, reflect fundamental differences in economic systems, and are complicated by a myriad of other differences between the two nations.

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Toby Mak (Overseas Member) discusses the changes. Several aspects will be of interest to UK businesses if they are followed through effectively, in particular the reduction in a requirement for notarized evidence (at least for US businesses), and dropping requirements for effectively mandatory technology transfer when investing in China. The discussion is also interesting in the context of the UK negotiating a trade agreement with the US. Many of the changes are already consistent with UK and EU practice, but the Agreement highlights the US concerns about geographical indications and may already result in constraints on what the UK can negotiate and shows that the US push for effective protection for the pharma industry.²

The US-China trade agreement 2020 signed on 15 January 2020 has eight chapters:Intellectual property (articles 1.1 to 1.36)

1. Technology transfer (articles 2.1 to 2.5)
2. Trade in food and agricultural products (article 3.1 plus 17 annexes)
3. Financial services (articles 4.1 to 4.7)
4. Macroeconomic policies and exchange rate matters and transparency (articles 5.1 to 5.4)
5. Expanding trade (articles 6.1 and 6.2, plus 2 annexes)
6. Bilateral evaluation and dispute resolution (articles 7.1 to 7.6, plus 1 annex)
7. Final provisions (articles 8.1 to 8.8), which defines annexes that are part of the Agreement, how amendments can be introduced, the authentic texts, and so on.

Naturally, this article will focus only on Chapters 1 and 2, which are intellectual property related. The articles in Chapters 1 and 2 will drastically change IP law in China, which adopt US IP practice into Chinese law in an unprecedented manner. (My observations are highlighted.)

Chapter 1 – Intellectual Property

Chapter 1 has 11 sections:

General Obligations – articles 1.1 and 1.2

1. Trade Secrets – articles 1.3 to 1.9
2. Pharmaceutical-related IP – articles 1.10 and 1.11
3. Patents – article 1.12
4. Piracy and Counterfeiting on E-commerce platforms – articles 1.13 and 1.14
5. Geographical Indications – articles 1.15 to 1.17
6. Manufacture and Export of Pirated and Counterfeit Goods – articles 1.18 to 1.23
7. Bad Faith Trade Marks – articles 1.24 to 1.25
8. Judicial Enforcement and Procedure in Intellectual Property Cases – articles 1.26 to 1.31
9. Bilateral Cooperation on Intellectual Property Protection – article 1.32 and 1.33
10. Implementations – articles 1.34 to 1.36

The implementation of this chapter will adapt US IP law and practice in China. Specifically, “The United States affirms that existing US measures afford treatment equivalent to that provided for in this article” is recited in every article with substantive implementation, except the following articles:

• 1.7 – eliminate actual loss requirement to enforce trade secret cases
• 1.19 – China to significantly increase number of enforcement actions in respect of counterfeit goods with health and safety risks
• 1.21 – strengthen border enforcement actions
• 1.27 – impose heavier punishment in IP cases at courts

Of course I will not term this US colonization of its IP law in China.

All of the above will be discussed below, except:

• J. Bilateral Cooperation on Intellectual Property Protection – article 1.32 and 1.33. This section states that bilateral cooperation is to be strengthened.
• Implementations – articles 1.34 to 1.36. This section requires China to produce an action plan within 30 working days after the Agreement comes into force.

General Obligations

These articles lay down the general principles that the importance of IP protection is recognized, and fair, adequate and effective protection and enforcement shall be ensured.

It is interesting to find in this section that China has now committed to these as it believes IP protection is in its own interests when it transforms from a major IP consumer to a major IP producer. Hopefully, this is not just lip service.

Trade Secrets

First, it should be noted that several articles in this section have already been implemented under the Chinese Anti-unfair Competition Law, effective since 1 November 2019. These are:

• Article 1.3 – in addition to business operators, also include natural persons, legal entities, non-legal entities are to be pursued for trade secret infringement.

This illustrates the fact that before the 2019 Anti-Unfair Competition Law, non-business operators like a government department could not be sued for trade secret infringement in China… Anyway, good luck suing a Chinese government organisation for trade secret infringement in a Chinese court.

• Article 1.4 – specifying that the following additional actions that would also amount to an infringement of trade secrets:
  • Electronic intrusion.
  • Violating confidentiality obligations.
  • Instigating, helping others to violate confidentiality obligations or violating the right owner’s requirements for protecting trade secrets, obtaining, disclosing, using or allowing others to use the right owner’s trade secrets.

This means that before this 2019 Anti-Unfair Competition Law, violating confidentiality obligation or assisting to do so could not be sued for trade secret infringement in China…

• Article 1.5 – ease of proof of trade secret infringement. This shifts the burden of proof to the alleged infringer (to show that the trade secret asserted by the trade secret owner is in fact not a trade secret, or the information used is different from that of the trade secret owner). If the trade secret right owner could provide preliminary evidence showing that measures have been taken to maintain the trade secret, and reasonably showing that the trade secret has been infringed by providing the following:
  • evidence showing that the alleged infringer has access to or has opportunity to access to the trade secret;
  • evidence showing that the information used by the alleged infringer is essentially the same as the trade secret;
  • evidence showing that the trade secret has been disclosed or used or is at risk of being disclosed or used by the alleged infringer; and
  • any other evidence showing that the trade secret is infringed by the alleged infringer.

Although the shift of burden of proof could make suing for trade secret infringement in China easier than before, it should be noted that the above preliminary evidence is required to initiate the shift. Readers familiar with my previous articles on how China imposes strict requirements on authentication of evidence by an unrelated third party, usually a Chinese notary, may consider that this is still mission impossible. However, the Agreement has a specific article directed to this, which may help to resolve some present difficulties. These are discussed later.

• Article 1.27 (enforcement related article) – increase compensation for trade secret infringement as below:
  • For a business operator infringing a trade secret in bad faith and being a case of gross violation, multiplying the compensation determined according to the loss of the right owner or profit made by the infringer from one to five times the value. [This is new.]
  • Increasing the cap of statutory damage (i.e., when loss or damage is not proved) to RMB 5 million. [About £550,000. Cap increased from RMB 3 million.]
• Article 1.27 (enforcement related article) – this enhances administrative punishment in respect of trade secret infringement as below:
  • Punishment can be applied additionally against a natural person, legal entity, and non-legal entity. [This parallels the change in article 1.3 above.]
  • Confiscation of illegal income. [This is new.]
  • Increasing fines to RMB 100,000 to 1 million [About £110,000. Cap increased from RMB 0.5 million], and for case of gross violation, increasing fines to RMB 0.5 to 5 million. [About £550,000. Cap increased from RMB 3 million.]

The following articles in the Agreement are to be implemented:

• Article 1.6 – Easier grant of preliminary injunctions with courts identifying trade secret cases as “urgent situation”.

This does not mean that preliminary injunctions will be granted automatically in trade secret cases. Other conditions, notably that irreparable damage would be indicted, are still required.

• Article 1.7 – Lowering the threshold for initiating criminal enforcement by eliminating the requirement on showing actual losses.
• Article 1.8 – Application of criminal procedures and penalties against willful trade secret misappropriation through theft, fraud, and unlawful physical and electronic intrusion.

Willful is the key here. The problem is, how to show this?

• Article 1.9 – Protection against unauthorized disclosure by government authorities by the following measures:
  • Limiting requests for information on a need-to-know basis.
  • Limiting access to submitted information on a need-to-know basis.
  • No access to be given to competing third-party experts or advisors.
  • bodog online casino Establishing mechanisms to challenge requests for exemption of a disclosure to a third party.
  • Provide penalties as below:
    • monetary fines;
    • suspension or termination of employment;
    • amendment of relevant laws; and
    • imprisonment

Article 1.9 above may mean that these issues had happened before, or at least are serious concerns from the US side.

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