Dr. John Gong is a professor at the University of International Business and Economics and a research fellow at the Academy of China Open Economy Studies at UIBE
The first phase of the Sino-US trade agreement, signed at the beginning of this year is supposed to have a midyear review. As President Trump openly admitted recently during a press interview, he postponed the meeting scheduled for Vice Premier Liu He and USTR ambassador Lighthizer for the grudges against China since the coronavirus outbreak. But Wall Street Journal reported a few days ago that the talk will still take place soon. We hold our fingers crossed that it is indeed the case.
The mid-year review is totally meaningless without referencing to the coronavirus situation that is still wreaking havoc globally, particularly in the United States. It is inevitable that China’s purchases of American products in accordance with the trade agreement would be negatively impacted on a pro rata basis, arguably for reasons that are partly demand-related in China and partly supply-related in the U.S. According to Peterson Institute for International Economics, overall China has purchased approximately 50% of its half-year commitment for covered goods.
But let it be clear that it doesn’t mean China is in violation of its commitment -- there is no such thing as violation based on an interim calculation. We will have to wait until the end of 2021 to deliver that judgment.
Nevertheless it is still important to evaluate the current status of implementation in more details. First of all, even amid a global pandemic and a torrent of anti-China actions emanating from the White House, and from the State Department, for sanctions against Hong Kong, for sanctions against Huawei, and more recently wanton pirating attempt to loot TikTok, China is still buying, and buying big.
According to the agreement, China has committed to an additional $63.9 billion of covered goods by the end of this year relative to the 2017 baseline, which then implies an overall imports target of $172.7 billion this year. The shortfalls in the agricultural and the manufactured goods categories should not be issues to be concerned about, because as the economy in China rebounds, a few dozens of billions of demand are something the world’s largest consumer market can easily digest. Just a few days ago on July 30, China made its largest ever single day purchase of U.S. corn, buying 1.94 million tons of it at an estimated cost of $300 million.
China’s biggest shortfall so far is in energy products -- $1.3 billion as of the end of June compared to the $25.3 billion whole year target. But the energy category situation is unique for two reasons. One is related to energy products’ special storage capacity requirement. We can’t import more if demand has not recovered. The second reason is related to prices. When this deal was signed in January, oil prices, for example WTI, were hovering around $60 a barrel. It crashed to $11 at one point and has since recovered to around $40. That means China has to purchase 50% more volume as the price has dropped by 50%. Year-on-year imports of U.S. liquid natural gas trebled in the first half of the year, but, due to the crash in its prices, the value of the imports only doubled.
And there is also the issue how many American companies are willing to sell at these price levels, as many shale oil companies in the U.S. have gone belly up.
Admittedly this is a year that is bad for everyone. Thankfully the Sino-US trade deal does have a force majeure type of clause that the two countries need to consult with each other in the event of “a natural disaster or other unforeseeable event.” No doubt Covid-19 is a natural disaster.
Ultimately we will soon know if President Trump is indeed interested in implementing the rest of the trade deal in a way to at least take some concrete steps towards resolving some of the structural issues associated with the Sino-US trade, or if he is merely using this as a venue of a blame game to assist his presidential campaign.
Going into the talk, I would imagine the American side is going to rant and rave for these purchase shortfalls for a few minutes. But if Mr. Lighthizer just continues endless ranting and raving and is only going to play the blame game, Vice Premier should just walk away and wish him good luck with job-hunting coming November. This is a time to see whether the Trump administration is really about “America-first” or“Trump-first.”
(This article does not reflect the view of TMTPost's editorial board but that of the columnist. If you are willing to share your opinon about a certain topic with our readers, please contact us at: english@tmtpost.com.)
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