Among the dozens of questions she received on China, Ms. Tai received a number that involved the U.S.-China Phase One Trade Agreement. For example, in response to a question from Senator Thune, Ms. Tai indicated that she would “assess China’s compliance with the Phase One deal to ensure it is living up to its commitments.” See Senate Finance Committee, Hearing to Consider the Nomination of Katherine C. Tai, of the District of Columbia, to be United States Trade Representative, with the rank of Ambassador Extraordinary and Plenipotentiary, Hearing Date: February 25, 2021, Questions for the Record, page 41, Senator Thune, Question 2, answer, https://www.finance.senate.gov/imo/media/doc/Katherine%20Tai%20Senate%20Finance%20Committee%20QFRs%202.28.2021.pdf. The full question and answer are copied below.

“Question 2:

“As a result of the U.S.-China Phase One trade deal, the U.S. has seen export gains to China across many agricultural sectors including soybeans, corn, beef, and pork.

“If confirmed, how would you ensure that China follows through on its Phase One commitments, particularly for U.S. agriculture? What steps would you take to build upon these successes and ensure that U.S. farm and ranch exports to China are not unfairly restricted by tariff and nontariff barriers?

“bodog casino “

Thus, one can expect that USTR under Amb. Tai will be continuing to monitor China’s implementation and enforcement of a wide range of changes to regulations an d practices intended to remove non-tariff barriers as well as tracking Chinese purchases of U.S. goods against the Annex 6.1 commitments made by China in the Phase I Agreement.

As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, although the level of actual implementation remains unclear.

Prior posts on the U.S.-China Phase 1 Agreement can be found here: February 6, 2021, U.S.-China Phase I Trade Agreement – data through December 2020; China has increased purchases of agricultural and energy products above 2017 levels but did not reach first year agreed purchases in 2020 and won’t reached the agreed level even if measured from March 2020-February 2021, https://currentthoughtsontrade.com/2021/02/06/u-s-china-phase-1-trade-agreement-data-through-december-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-did-not-reach-first-year-agreed-purchases-in/; January 9, 2021, U.S.-China Phase 1 Trade Agreement — Data through November 2020; China has increased purchases of agricultural and energy products above 2017 levels but will not reach first year agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2021/01/09/u-s-china-phase-1-trade-agreement-data-through-november-2020-china-has-increased-purchases-of-agricultural-and-energy-products-above-2017-levels-but-will-not-reach-first-year-agreed-purchases-in/; December 10, 2020, U.S.-China Phase I Trade Agreement – data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2020/12/10/u-s-china-phase-1-trade-agreement-data-through-october-2020-while-china-has-increased-purchases-of-agricultural-and-some-other-products-china-remains-far-behind-on-the-agreed-purchases-in-2020-w/; November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020,  U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of bodog sportsbook review U.S. domestic exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of bodog sportsbook review 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/.

This post looks at U.S. export data for January 2021, a month whose data reflects basically business in the last month of the Trump Administration.

Purchase Commitments

Annex 6.1 of the Phase I Agreement contains commitments for “additional U.S. exports to China on Top of 2017 baseline” for two years, 2020 and 2021. Article 6.3 of the Agreement states that “The Parties project that the trajectory of increases in the amounts of manufactured goods, agricultural goods, energy products, and services purchased and imported into China from the United States will continue in calendar years 2022 through 2025.

The Agreement lists 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.

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 was calendar year 2020. Calendar year 2021 is the second year of the agreement. The level of increases in U.S. exports to China for 2021 is as follows: manufactured goods $44.8 billion on top of 2017 base line of $58.4 billion (2021 total of $103.2 billion or an increase of 76.81% over 2017 actual); agriculture (including seafood) $19.5 billion on top of 2017 base line of $20.85 billion (2021 total of $40.35 billion or an increase of 93.51% over 2017 actual); energy $33.9 billion on top of 2017 base line of $7.6 billion (2021 total of $41.5 billion or an increase of 447.95% over 2017 actual); services $25.1 billion on top of 2017 base line for the selected services of $53.033 billion (2021 total of $78.133 billion or an increase of 47.33% over 2017 actual). Increases from 2017 for the calendar year 2020 agreed levels were lower than for 2021 (increases over 2017 of $32.9 billion, $12.5 billion, $18.5 billion and $12.8 billion respectively for manufactured goods, agriculture, energy and services). The breakout of services exports is not available for 2020 or January 2021. However, U.S. exports of all services to China for 2020 were $37.921 billion vs. $54.981 billion in 2017, a decline of 31% for all services, thus, U.S. services exports covered by the Phase I Agreement declined in 2020. See U.S. Census Bureau and the U.S. Bureau of Economic Analysis, MONTHLY U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES, JANUARY 2021, March 5, 2021, page 28, Exhibit 20b, https://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf. While the BEA data don’t show exports of services in January by country, January 2021 total services exports are down from January 2020 (before the pandemic resulted in significant closures) with the largest reductions in travel followed by transport and by maintenance and repair services.

In 2017, the selected goods covered by Annex 6.1 were $86.795 billion of total bodog sportsbook review U.S. domestic exports to China of $120.109 billion, meaning non-covered U.S. exports in 2017 were $33.314 billion. On services, the selected services covered by Annex 6.1 were $53.033 billion of total services exports to China of $54.981. So non-covered services were $1.948 billion. For goods, there were sharp declines in 2020 of U.S. exports to China of non-covered products from the levels achieved in 2017 (roughly $6.6 billion). Non-covered products are slightly up in January 2021 versus January 2017. While the services break out for 2020 is not yet available by country by type of service, total services exports to China (as reviewed above) were down 31% . The non-covered services are relatively small (just 3.5% of total services exports).

Since the Agreement took effect in mid-February, my analysis in prior posts 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 the Trump Administration 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.

March 2020-January 2021 data compared to 2017 (other than February); January 2021 compared to January 2017

For purposes of this post, I will look at the March 2020 – January 2021 data compared to January and March-December 2017 data, but I will also look at the first month of 2021 compared to January 2017. In my last post in February, I had reviewed calendar 2020 data compared to 2017 data. The data analyzed is limited to goods since the services data is more limited and has been summarized above.

Looking at bodog sportsbook review U.S. domestic exports for the March 2020 – January 2021 period and projecting for a full twelve months (March 2020-February 2021) shows China meeting 94.64% of first year agriculture commitments, and 51.06% above 2017 actual levels for all months other than February. Total Phase 1 products are projected at only 61.01% of first year commitments with manufactured goods at 52.78% and energy at 44.47%. While agriculture products are projected to exceed 2017 actual by $10.7 billion and energy is projected to exceed 2017 by $4.0 billion, manufactured goods are projected to be $10.2 billion smaller than 2017 actual. Compared to first year purchase commitments, total U.S. Phase I goods exports are projected to be $59.4 billion short of the agreed first year level.

If looking at a calendar year 2021, the data for January show increases for each of the three goods categories over January 201 but each category trails the level of increase needed to meet 2021 purchase commitments. Manufactured goods are up 4.39%, but the commitment levels are 76.81% higher than 2017 actual. Similarly, on agricultural products covered by the Phase I commitments, U.S. exports are up 58.51% from 2017 compared to the 2021 increase of 98.51% over 2017 needed to meet the commitments for 2021. On energy, U.S. exports are up 150.56% over January 2017 but far below the 447.99% increase needed to meet the Phase I commitments for 2021. For all Phase I goods, U.S. exports in January are up 33.34% but the annual increase to meet the Phase I commitment is 113.14%.

To meet first year commitments on a March 2020-February 2021 basis , China would have to import monthly 7.71 times the product from the United States as was done in the first eleven months in the next month (February). On a calendar basis, bodog sportsbook review U.S. domestic exports in January 2021 missed the agreed level on goods by $5.375 billion (or an amount equal to 59.49% of January 2021 actual).

Looking at total bodog sportsbook review U.S. domestic exports of goods to China for the period March 2020 – January 2021., U.S. exports were $109.313 billion ($9.938 billion/month) compared to $111.099 billion in 2017 for the eleven months (all other bodog sportsbook review than February)(.100 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For January 2021, total U.S. domestic exports to China were $11.254 billion compared to $9.350 billion in January 2017.

Total 2017 bodog sportsbook review 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 bodog sportsbook review U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year) and $30.806 billion for 2017 excluding February. For the period March 2020 – January 2021, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.86%, and total exports to China are down 1.61%. Looking at January 2021, other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 13.05% from comparable levels in January 2017.

Thus, the first eleven months since the U.S.-China Phase 1 Agreement went into effect suggest that bodog sportsbook review U.S. domestic exports of the Annex 6 goods will be $91.334 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 $26.845 billion, for total U.S. domestic exports to China of $118.179 billion. This figure would be below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $176.938 billion with noncovered products at estimated March 2020 – February 2021 levels) . The projected U.S. domestic exports to China would, however, be higher than the $109.72 billion in 2018 and the depressed figure of $94.100 billion in 2019.

If one looks at January 2021, bodog sportsbook review U.S. domestic exports to China of Annex 6 goods were $8.981 billion, other exports of $2.274 billion, for total domestic exports in January 2021 of $11.254 billion, ahead of January 2017 but $5.375 billion behind the 2021 rate of increase over 2017 of 113.14%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for January, March-December 2017, March 2020 – January 2021 and rate of growth for the first year of the Agreement (figures in $ million):

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. USTR Tai has indicated that the Biden Administration will monitor compliance by China with the terms of the Phase I Agreement.

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

The differences in economic systems between China and the United States have made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. While the Biden Administration is doing a full review of the challenges posed by China’s trade policies, it is good news that they will be working to see that the Phase I Agreement is fulfilled.

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

To view the original blog post, please click here. 

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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 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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, bodog sportsbook review 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 bodog sportsbook review 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. 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

To read the original blog post, please click here.

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But since brokering a trade deal with Beijing in January, he has become one of China’s biggest defenders within the administration, emerging as an obstacle to lawmakers and other top White House officials who want to punish China over its treatment of ethnic Muslims and begin trade talks with Taiwan.

Over the past several months, Mr. Lighthizer has pushed back on several proposed policy measures that rankled Beijing, arguing those efforts could disrupt the U.S.-China trade pact that he and President Trump spent more than two years trying to forge, according to several former government officials and other people familiar with the conversations.

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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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 period. Total bodog sportsbook review 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 bodog sportsbook review U.S. domestic exports to China for any month in the 2017-July 2020 period based on U.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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 bodog sportsbook review 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 period. Total bodog sportsbook review 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 bodog sportsbook review U.S. domestic exports to China for any month in the 2017-June 2020 period based on U.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 bodog sportsbook review 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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April 14 marked the two-month anniversary of the entry into force of one of the most high-profile trade agreements ever negotiated, the U.S.-China Phase One trade deal. The world has changed dramatically over the past 60 days, with the outbreak of the COVID-19 pandemic, and overall U.S.-China relations continue to deteriorate. Nevertheless, Washington and Beijing have maintained their efforts to implement the detailed provisions of the trade accord.

It’s premature to judge whether the agreement has succeeded in achieving its objectives of further opening and promoting structural reforms in China’s economy while rebalancing bilateral trade flows. However, it’s not too soon to offer perspectives on implementation thus far.

It’s a mixed picture, with some encouraging progress but also some missed deadlines and serious doubts on whether the purchasing commitments can be met. The fallout from the coronavirus outbreak obviously plays a role here, but the uneven record also reflects the long-standing challenges of implementing any complex trade agreement.

After a year and half of tariff hikes and tense negotiations, the United States and China reached a trade deal last December, which, in the words of the Office of the United States Trade Representative (USTR), “Requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.”

It also featured Chinese commitments to purchase substantially more U.S. goods and services during 2020 and 2021, with specific values assigned to categories of products. USTR emphasized that it was an “historic and enforceable” deal, with an unprecedented dispute resolution system providing the possibility for reimposition of tariffs, should other solutions not be found.

Even in the face of the coronavirus outbreak and the resulting economic downturn, Chinese officials have followed through on many commitments. Most notably, Beijing has checked the box when it comes to easing agricultural restrictions on U.S. exports of poultry, beef, pet food, and potatoes, among other products.

There is also good news on the financial services front. China’s Securities Regulatory Commission announced it was scrapping limits on foreign ownership and granted approvals to Goldman Sachs and Morgan Stanley in late March to increase their stakes in securities joint ventures to 51 percent — putting both on the road to wholly foreign-owned companies.

This follows the granting of a license to JPMorganChase in December 2019 for its wholly owned securities business in China. On intellectual property rights protection (IPR), there has also been some progress. In March, the Supreme People’s Court issued a draft IPR enforcement plan and proposed a handful of judicial interpretations addressing IP protections and procedures. Lastly, Chinese authorities reportedly have been granting regular tariff exclusions to imports of U.S agriculture and manufactured goods.

Despite these encouraging signs, the implementation record is not as clear nor necessarily as positive in other areas. Recognizing that we may not have a full picture, there has been a lack of visible progress in a number of areas, including: streamlining agriculture biotechnology approvals for bio-engineered seeds/crops; the issuance of a detailed IPR action plan; and lifting ownership and scope-of-business restrictions for U.S. insurance firms by April 1.

Some of these adjustments require legislative or regulatory changes at a time when Chinese lawmakers and economic authorities, understandably, have had a severely circumscribed ability to meet. The National People’s Congress has been pushed back for several months from its usual March timeframe, for instance. But it’s important to keep in mind that the legislature’s standing committee meets every other month and has the authority to issue laws on behalf of the full body.

Despite some high-profile purchases of soybeans, pork, and wheat this year, it is unclear where China stands on meeting its commitments to purchase an additional $200 billion of U.S. goods and services beyond 2017 levels over the next two years. This target — a unique feature of the trade agreement — was already a stretch under the best of circumstances, but the coronavirus outbreak pushed this obligation to the cusp of the impossible.

According to just-published Chinese trade data, Chinese imports for the first quarter of this year fell by 2.9 percent over 2019. And even once Chinese demand picks up, U.S. exporters will face challenges shipping the amount of goods specified in the agreement as the pandemic continues to spread across the United States.   

In light of certain shortcomings in implementation, why hasn’t the Trump Administration invoked the dispute resolution procedures against China that were so highly touted at the deal’s conclusion? There seem to be three reasons. First, both governments are rightfully consumed with addressing the public health emergencies and economic fallout from the coronavirus outbreak.

Second, politics plays a role, with both Presidents Trump and Xi sharing an interest in showing that the agreement is working and preferring, for the moment at least, not to provoke each other on this aspect of the bilateral relationship.

Finally, it’s becoming apparent that assessing compliance is often not a black or white issue. There are typically shades of grey in implementation of trade agreements, particularly in light of ambiguities in the legal texts. In many cases, calls need to be made on whether things are moving in the right direction and thus quiet conversations would be the most useful in keeping things on track versus going down the dispute settlement route.

One additional consideration here: to pursue dispute resolution cases, on-the-ground information from U.S. companies is critical. Yet, U.S. companies have historically been reluctant to report unfair treatment in China to the U.S. Government for fear of retribution. Given the publicity around trade with China, we suspect firms will be extra cautious in bringing forward such complaints, coupled with a fear that the Administration may impose more tariffs.   

As we enter into the third month of the U.S.-China trade agreement, we can expect continuing ups and downs in implementation. That’s only natural for an agreement with seven chapters of detailed commitments. At the end of the day, however, the agreement won’t be judged solely by technical compliance with specific provisions.

Rather, the fundamental question will be whether the agreement achieved its objectives of opening and reforming the Chinese economy while rebalancing the bilateral trade relationship. The jury is still out.

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Rethinking China supply chain dependency

Long before any of us heard the word “coronavirus”, a series of gradually escalating tariff rounds between the US and China beginning in 2018 created significant disruptions in what was then a roughly $635 billion trade relationship.

Business executives were forced to rethink and in some cases reconfigure supply chains in order bodog sportsbook review to avoid both the cost of the tariffs and the uncertainty created by the ever-present threat of additional tariffs.  Intermediary and finished products which had been sourced from China began to increasingly enter the US from Colombia, Vietnam, Mexico, and elsewhere.

Many of the Trump Administration trade officials who authored the US’ more confrontational approach to China did so out of a core belief that deep economic integration between the two countries was a strategic mistake which had worked to the advantage of China and to the detriment of the US.

The implicit (and in some cases explicit) rationale behind many of the US’ trade actions was to shift supply chains out of China — if not back to the US, then at least closer to home.

A pandemic changes everything

The onset of the coronavirus has intensified these predispositions and added an entirely new dimension: public health considerations are now front and center in trade relationships.  Developing greater self-sufficiency in medical goods while minimizing supply risk has begun to take on literal “life and death” connotations for many countries. 

The massive stimulus package just passed by the US Congress mandates the National Academies of Sciences, Engineering, and Medicine to review the heavily China-dependent US medical supply chain (ranging from drugs to equipment and devices) to identify national security and public health risks. 

According to the Peterson Institute, roughly half of the Personal Protective Equipment the U.S. imports comes from China, and the figure for mouth-nose protective equipment is closer to 70 percent.

Discussion is underway in the White House on strengthening “Buy American” requirements on pharmaceuticals and medical supplies.  Prior to the pandemic, the US had already been actively considering withdrawal from the WTO Government Procurement Agreement (which limits “Buy American”-type policies). 

Although debate in the White House continues, the onset of coronavirus has strengthened the rationale for buttressing domestic medical and pharmaceutical production, while reducing dependence on imports.

As the full magnitude of the pandemic continues to manifest, expect to see an even stronger impetus – either by government directive or marketplace realities — to shift supply chains away from China, along with calls for nationalistic industrial support strategies.  

A reignited trade war?

The Phase One trade agreement signed by the US and China in January deferred the most consequential and difficult issues to subsequent rounds of negotiations. Yet the pandemic — and the associated economic slowdown — is threatening implementation of even the comparatively “easy” Phase One obligations, especially those calling for roughly $200 billion in Chinese purchases of US products.     

To its credit, China has recently stepped up its purchases of US wheat and LPG and has relaxed its restrictions on three types of beef hormones, as called for in the agreement.

But they remain far short of the specified purchase levels, and despite provisions in the agreement which call for consultations if unforeseen events threaten implementation, it’s unclear how amicably any implementation shortfalls can be managed.  The US would be entitled under the agreement to put tariffs back into place if China fails to meet its purchase obligations. 

Perhaps of greater long-term consequence, the Phase Two negotiations which were intended to tackle core fundamental issues such as Chinese subsidies and industrial policies appear to have been put on indefinite “hold” thanks to the pandemic. 

Unless substantive negotiations can successfully address these issues, disputes will inevitably bubble to the surface again, and the prospect for re-imposition of rolled-back tariffs or the application of new tariffs will be back on the table.  

The post-Phase One truce we’re currently enjoying might eventually become another casualty of the pandemic, and we could find ourselves once again in the midst of an escalating trade war.

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As the coronavirus has spread, mistrust between the United States and China has hampered the global coordination such a crisis requires. Both countries share responsibility for failing to cooperate. Beijing’s lack of transparency about the true extent of the outbreak, due to political imperatives and economic concerns, fueled suspicions from the outset.

Prior to the outbreak of the virus in the United States, Washington offered aid and assistance that China was reluctant to accept, though U.S. health experts were eventually allowed to join the visiting World Health Organization (WHO) delegation. Later, Beijing criticized the United States for being one of the first countries to impose restrictions on those traveling from China.

Meanwhile, U.S. President Donald Trump’s administration has pursued policies, all born of a broad rejection of engagement, that have left the United States poorly positioned to respond to a pandemic.

Under previous administrations, the U.S. Centers for Disease Control and Prevention maintained a substantial presence on the ground in China. U.S. public health experts established relationships with Chinese counterparts and instituted procedures that were called upon when the severe acute respiratory syndrome (SARS) outbreak took place in 2002 and 2003. The Trump administration has rolled back much of that presence.

There is little reason to expect this dynamic to change now that China appears to be reining in the virus, while its spread accelerates in the United States. In February, Senator Tom Cotton made unsubstantiated claims that the virus may have originated in a Chinese lab or as a bioweapon.

Already, Beijing’s propaganda machine is crediting the Chinese Communist Party and political system with having reduced the global threat. The Chinese Ministry of Foreign Affairs has even claimed the virus did not originate in China.

HOW WILL THE OUTBREAK AFFECT THE U.S.-CHINA TRADE DEAL?

It is difficult to tell how much of an impact the coronavirus will have on the phase-one trade deal that took effect in February. Beijing recently affirmed its intent to follow through. Although there are concerns Beijing may not be able to meet commitments to buy an additional $200 billion in U.S. goods within two years, most of that pledge is backloaded, with only about $75 billion in purchases scheduled for 2020.

If faced with difficulties, Beijing could invoke the deal’s force majeure clause, as the China National Offshore Oil Corporation has already done to cancel several liquefied natural gas contracts. For its part, the Trump administration has sent mixed messages about the deal.

White House economic adviser Larry Kudlow said the virus could delay agricultural purchases and other aspects of the deal. U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue, however, repudiated Kudlow’s comments. Instead, they confirmed that China is making progress on its agricultural purchase commitments and is loosening other trade restrictions; in a joint statement, Perdue said they “fully expect compliance with all elements of the deal.”

Treasury Secretary Steven Mnuchin similarly said on February 23 that he doesn’t expect the coronavirus to have any material effect on the phase-one deal, though he mentioned that the outbreak could delay negotiations on phase two.

But, when asked on March 3 whether the administration would consider suspending tariffs on China and Europe, Mnuchin acknowledged the administration would “look at all the options” as the economic impact of the virus became more apparent. Unsurprisingly, the Global Times was quick to say a suspension of tariffs would represent a turning point in the trade war.

If either side struggles to meet its commitments, the coronavirus could offer an out. As the U.S. presidential race picks up, Trump will likely do everything he can to prevent the deal from falling apart or being pilloried as a failure. Beijing is equally eager to keep the deal in place to avoid a return to previous tariff levels and increased uncertainty, especially amid efforts to jumpstart the Chinese economy.

WHAT WILL THE CORONAVIRUS MEAN FOR THE BELT AND ROAD INITIATIVE?

Reports have emerged detailing significant delays to Belt and Road Initiative (BRI) infrastructure projects in Bangladesh, Indonesia, Nepal, and Sri Lanka due to the coronavirus. Restrictive travel bans have prevented Chinese workers from returning to BRI worksites abroad, while the shutdown of Chinese factories that supply machinery and raw materials for BRI projects has hindered projects from moving forward. These delays could place further strains on countries already struggling with heavy debt burdens.

Furthermore, China’s economic standstill in the first quarter of 2020 will undoubtedly prompt a government response, likely in the form of interest rate cuts, increased lending, and fiscal stimulus measures. Even if the economy recovers, the government will face pressure to invest resources domestically rather than overseas.

Despite major setbacks, Beijing is unlikely to abandon the BRI anytime soon. Just as the trade deal is central to Trump’s agenda, the BRI is a symbol of China’s emergence as a great power and is a signature project of Chinese President Xi Jinping. China’s development bank recently issued a statement announcing plans to support BRI companies affected by the coronavirus.

Countries that have benefited from the immense investment and development opportunities the BRI provides, such as Cambodia, have also come to China’s defenseduring the outbreak. Cambodian Prime Minister Hun Sen, the first foreign leader to travel to Beijing following the virus’s outbreak, criticized other countries for implementing extreme restrictions on travelers from China and continues to maintain open borders. In response, Xi told Hun Sen that “a friend in need is a friend indeed.”

Once the coronavirus is brought under control, countries still struggling to rebound from the related economic shocks could use the outbreak as an excuse to abandon unsuccessful or politically unpopular projects. Conversely, Beijing may find new opportunities to expand the BRI’s footprint in countries seeking to foster economic development.

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Energy trade was the centerpiece of U.S. President Donald Trump’s just-completed pact with China, seemingly matching soaring U.S. production of oil and natural gas with bottomless Chinese demand for fuel.

While it was always going to be a stretch to meet the ambitious Chinese purchase targets laid out in the agreement, the recent explosion of the coronavirus and the impact it has had on China’s economic growth have now made those grandiose energy visions completely unrealistic—just as Trump takes to the campaign trail to tout the deal’s benefits ahead of his reelection bid.

The outbreak of the novel coronavirus, which has infected tens of thousands of people and killed more than 1,300 in little more than a month, seemed to have peaked—until new diagnostic techniques this week showed that the virus had infected thousands more and killed hundreds more than previously thought.

And the uptick in the disease’s virulence has been matched by growing signs of its impact on China’s and the global economy: Cargo ships are piling up outside ports full of undelivered commodities; oil and petrochemical refineries are scaling back operations due to declining demand for their products; Chinese consumer spending is anemic; and supply chains worldwide are shuddering.

Air freight, a key indicator of global trade, seemed on the uptick after a dismal 2019, until it collapsed again in January, a potential harbinger of a broader slowdown in cross-border trade flows.The International Energy Agency just underscored the dramatic impact the virus is having: For the first time since the financial crisis a decade ago, the world’s demand for crude oil will decline in the first quarter of the year, led by a precipitous fall in oil demand in China, the world’s biggest oil importer.

The energy market impacts of the coronavirus will likely doom the $50 billion in additional oil and natural gas purchases that Trump was banking on as one of the few positive outcomes of his 18-month trade war with China, which resulted in slower growth in both economies, billions of dollars in new taxes for U.S. consumers, and lost markets for U.S. farmers and oil workers.

To be sure, the virus may have read the last rites to the hoped-for energy trade, but the deal was already impossibly ambitious even before the disease suddenly upended travel and business throughout the world’s second biggest economy at the beginning of the year.

Under the terms of the “phase one” deal signed last month, China agreed to purchase an additional $18.5 billion in energy products this year and $34 billion next year—above and beyond what it was already buying to power cars, planes, and factories. That would have required a 275 percent increase in Chinese energy purchase this year and a whopping 500 percent increase over 2017 levels next year.

(Similarly aggressive expectations for increased agriculture sales to China are even more difficult to meet, since American farmers wracked by bankruptcies and lost markets would have to massively increase their spring planting in the next few weeks, even as the coronavirus decimates China’s short-term growth prospects.)

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