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China Is Far Behind on U.S. Purchases Under Trade Deal

10/26/2020 | 05:05pm EST

By Josh Zumbrun and Yuka Hayashi

WASHINGTON -- China accelerated purchases of U.S. farm products last month, new data shows, but overall it remains far behind on a commitment to buy about $140 billion in U.S. goods this year under the bilateral trade accord signed Jan. 15.

As of Sep. 30, China had purchased $58.8 billion in goods covered by the agreement, according to calculations from Chad Bown of the Peterson Institute for International Economics based on Commerce Department figures released Monday. Purchases should have reached $108 billion by that time to be on track toward the full-year target.

"Certainly, the Chinese are not going to meet the commitments," said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies. "The trend lines don't look good regardless of which category you are talking about."

Mr. Kennedy and other economists said declines in China's domestic demand amid the Covid-19 pandemic was in part responsible for the slow purchases.

Farm products have shown improvement through the year. China has purchased or committed to purchase about $23 billion in agricultural goods, U.S. government officials said Friday, or about 71% of its target. The U.S. report said purchased or contracted sales of corn are at an all-time high of 8.7 million tons, and that U.S. pork exports to China are at record levels.

The $23 billion figure includes contracts for future purchases that have not yet been completed. In terms of actual exports through September, the U.S. had sent $12.7 billion of agricultural goods to China through September against a target for 2020 of $33.4 billion.

For manufactured goods, the U.S. has exported $40.2 billion against an annual target of $83.1 billion. Many categories of manufacturing have been depressed by the pandemic, but one of the biggest categories -- aircraft exports -- has also suffered from Boeing Co.'s crisis over its 737 MAX airplane.

For energy, sales to China are especially far behind. As of September, the U.S. has exported $5.9 billion against a target for the year of $26.1 billion. The gap is so wide in part because energy prices collapsed earlier in the year, requiring a far greater volumes to meet the goal, which is specified in terms of dollars, not product volume.

The Chinese Embassy in the U.S. didn't respond to questions about the purchase targets. During a videoconference with U.S. business representatives on Oct. 19, Chinese officials said China has done a "huge amount of work" to promote the implementation of the trade deal and has made "positive progress" in increasing imports from the U.S., according to a statement posted on the website of the National Development and Reform Commission, China's top economic planning agency.

The U.S. Trade Representative, which negotiated the so-called phase-one trade deal between Washington and Beijing, published a report Friday detailing progress toward the agricultural targets.

The report, which the USTR published along with the U.S. Department of Agriculture, said the phase-one deal was already getting strong results in the area of farm purchases.

"Since the Agreement entered into force, the United States and China have addressed a multitude of structural barriers in China that had been impeding exports of U.S. food and agricultural products," the report said. "To date, China has implemented at least 50 of the 57 technical commitments under the Phase One Agreement.

The report said that combining information on purchases and contracts for future purchases suggested the Chinese were closer to targets than indicated by Mr. Bown's methodology, which tallies only actual exports.

"It is still to be seen whether they meet their target but particularly given the COVID-19 effects on the global economy they are making substantial progress," the report said.

Some U.S. officials view the improvement in agricultural purchases as a sign that China is making a sincere push to catch up on purchases after the pandemic knocked the timeline off course, and that the shortfall is not a case of China breaking a commitment.

The accord's targets, however, are about to get harder to meet. The deal signed in January called for a significant increase in the pace of purchases in 2021 in order to reach the big headline promise of an additional $200 billion in sales over two years.

To meet that goal, the purchases would not only need to make up for lost ground in 2020. The targets next year are about 21% higher for agricultural goods, about 59% higher for energy goods and 14% higher for manufactured goods.

Next year could present an opportunity to get on track, especially as many economic forecasters believe China and U.S. could see strong growth as they bounce back from the downturn caused by the coronavirus pandemic and associated lockdowns.

"It's a two-year agreement, and we need to see what happens in the first half of 2021," said Craig Allen, president of the U.S. China Business Council. "If the Chinese are going to meet their agreement, it would be a huge surge in 2021, in the second half of 2021."

Mr. Allen said that while China has so far fallen behind on the purchase agreement, structural market-opening measures included in the phase-one agreement have worked well, bringing progress in longstanding issues faced by American companies in areas such as banking and intellectual property rights.

In the financial-services industry, for example, Beijing has allowed JPMorgan Chase & Co. and Citigroup Inc. to set up wholly owned securities businesses and approved American Express Co. to process domestic transactions.

In a landmark intellectual-property case, New Balance Inc., the athletic footwear maker, was awarded damages in a local court over the use of its logo by Chinese companies.

"The purchase agreements are important but they are short term and transactional," Mr. Allen said. "These other things are longer-term and structural. It's important to keep that contrast in mind."

The U.S. and China formally discussed the purchases in August. In a joint statement, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who led the negotiations with China, said that "both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement."

The future of the trade agreement could change depending on the result of the Nov. 3 presidential election. If former Vice President Joe Biden wins, the significance of the purchase agreement could wane as Democrats see it as an overly aggressive target set based on Mr. Trump's political agenda.

Mr. Biden has said he will work with allies to push China to follow international trade rules but hasn't discussed details of his policy, including what to do with the latest trade deal.

--Liyan Qi contributed to this article.

(END) Dow Jones Newswires

10-26-20 1804ET

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