Amid heavy-duty market uncertainty, Bloomberg weighed in on progress toward the phase one goals of the china trade deal this week. The U.S. is willing to show China “some flexibility” on its pledges to boost American imports — but is expected to insist that Beijing prevents an export surge when its production returns to full strength. The key metric will be whether the trade imbalance widens between the world’s two largest economies, the report said.
Given Beijing’s challenges in containing its coronavirus outbreak and the country’s lagging demand for American imports, U.S. officials are thought to have told their Chinese counterparts that China’s purchasing boost, signed in January with specific target dates and commodities, could start off slowly, Bloomberg says.
That understanding comes with “some conditions.” The administration has made clear that its “flexibility” is only an option as long as there isn’t a sharp rebound in shipments of Chinese products without a corresponding upswing in imports. Such a development could swell the already gaping U.S. trade deficit with China — the metric President Trump has frequently based his policies on. One other condition being noted is that the total of the purchase targets can’t change and that China’s purchases fulfill the commitments eventually.
The White House declined to comment on Bloomberg’s report and directed questions to the U.S. Trade Representative who said that the “U.S. expects China to meet its commitments under the agreement.”
The U.S.-China trade balance is a frequently used administration gauge to measure “who’s winning the global battle for economic supremacy — but a measure most economists find wanting.” Still, Bloomberg thinks there would likely be little patience in the U.S. administration — particularly leading up to Trump’s re-election bid in November — to let China delay purchases for long while exports accelerate.
Bloomberg notes that trade observers express some uncertainty about how China would ensure that there is no surge in exports. For the first two months of this year, China had a trade surplus of $25.4 billion with the U.S. but that deficit with narrowed in January to $23.7 billion, the smallest since 2011, according to U.S. data released last week.
The phase-one trade deal that led to a tariff cease-fire took effect in mid-February. Since then, China has been making progress in fulfilling some of its agreed requirements, lowering tariffs, reducing restrictions on U.S. agricultural products and approving Mastercard Inc. to set up a bank-card clearing business.
However, with the economy shut for much of January and February due to Lunar New Year holiday and then the COVID-19 outbreak, there is little evidence that China has continued to fulfill its promise in the deal that’s most important to the administration — a sharp increase in its purchases from the U.S.
China agreed to increase its imports of U.S. goods and services by $76.7 billion over the 2017 level in in the first year of the deal and then by $123.3 billion in the second year, increasing imports by a total $200 billion over two years. A more detailed annex of the agreement that lays out specific commodities and their target numbers was classified.
The document also set up regular meetings to discuss the progress and implementation of the agreement. The two sides are currently preparing for talks, Bloomberg said.
The president acknowledged last week that the buying spree might not fully be in effect before November.
“They’re going to start kicking in fairly soon. Unfortunately, by the time we get to the election they’ll just be partially kicked in,” the president said about his China deal and other trade agreements in a TV interview last Wednesday.
So, we will see. Clearly, the administration faces a serious challenge as it seeks to limit economic damage from the coronavirus outbreak. How it manages both its economic threats and its trade policies are issues that should be watched closely by producers as the season progresses, Washington Insider believes.
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