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09.02.202220:58 विदेशी मुद्रा विश्लेषण और समीक्षा: US trade data reveals massive shortfall in China's purchases

The US Department of Commerce report says US goods exports to China fell in December, cementing a massive shortfall in Beijing's two-year purchase commitments under the "Phase 1" trade deal negotiated by former President Donald Trump's administration.

The US Census Bureau said on Tuesday that the United States' 2021 goods trade deficit with China rose by $45 billion, or 14.5%, to $355.3 billion, the largest since a 2018 record of $418.2 billion.

The 2020 gap was $310.3 billion, a 10-year low driven by coronavirus pandemic lockdowns.

Notably, the global US trade deficit in 2021 surged 27% to a record $859.1 billion as businesses restocked inventories to meet robust demand.

The data showed China by far missed its commitments to purchase an additional $200 billion worth of US farm and manufactured goods, energy and services above 2017 levels, the year before a bitter trade war embroiled the world's two largest economies.

The purchase commitments were the centerpiece of Trump's Phase 1 trade deal with China, which launched in mid-February 2020 and halted a threatened escalation of tariffs.

The deal also called for China to grant increased US market access to its agricultural biotechnology and financial services sectors and mandated some intellectual property protection improvements.

Beijing has sought to lift tariffs on hundreds of billions of dollars worth of goods that remained in place under the Phase 1 deal.

An analysis of final 2021 Census trade data compiled by economist Chad Bown of the Peterson Institute for International Economics showed China met just 57% of its full two-year goods and services targets.

According to him, Beijing's purchases of the goods, energy and services targeted in the Phase 1 agreement were not even enough to return to China's baseline 2017 level of purchases of U.S. imports after retaliatory tariffs had eroded them in 2018 and 2019.

"Put differently, China bought none of the additional $200 billion of exports Trump's deal had promised," Bown said in his analysis.

The data for agricultural products, traditionally a vulnerable area for the PRC, look slightly better. China exceeded the 2017 baseline in agricultural purchases, but only reached 83% of the $73.9 billion two-year farm goods target.

Services exports to China, which had been a bright spot for US trade, fell sharply as the pandemic slashed Chinese tourism and business travel to the United States and cut the flow of Chinese students to US universities, reaching only 52% of the target.

"We have engaged the PRC (People's Republic of China) on its shortfalls for months, but have not seen real signs towards making good on the purchase commitments and our patience is wearing thin," Adam Hodge, a spokesperson for the U.S. Trade Representative's office, said in an e-mailed statement.

"Regardless of how these negotiations conclude, the fact remains that the Phase One Agreement did not address the core problems with the PRC's state-led economy," Hodge said, adding that the Biden administration would "shape the environment around China" by building U.S. competitiveness, diversifying markets and limiting the impact of China's "harmful practices."

Liu Pengyu, a spokesperson for China's embassy in Washington, said China has been working on implementation of the agreement "despite the impact of COVID-19, global economic recession and supply chain disruptions."

"The Phase 1 deal benefits China and the U.S. and the whole world," he added.

The agreement contains a clause that the two parties "project that the trajectory of increases" in China's purchases "will continue in calendar years 2022 through 2025" without specific targets.

Former USTR chief of staff Jamieson Greer, who helped negotiate the Phase 1 deal, said that clause could be used to pursue "retrospective enforcement for what's been missed."

"It's in the interest of the administration to pursue enforcement," said Greer, a trade lawyer with King and Spalding.

"With a few kind of narrow exceptions, we haven't really seen that much enforcement" on trade matters from the Biden administration, he added.

Indeed, the outbreak of coronavirus in China and the provinces is taking on alarming proportions, especially as the Chinese have no sustained immunity due to the strict implementation of the so-called "zero plan", which calls for the complete suppression of outbreaks in affected areas.

Back in late November, the Chinese government suggested to stock up on essential supplies in order to get through the winter in possible isolation. With this in mind, it is likely that consumption levels in the country are falling.

So, there is still a chance to catch up as economies recover.

On the other hand, China's policy is becoming more and more isolationist.

At the beginning and middle of 2021, many discussed the conflict over the political and economic relations between the two countries, but another wave of Covid-19 ended the escalation. However, the omicron epidemic is likely to subside in spring, at least in the US, and Americans are already itching to produce (and sell) more. So, perhaps China will continue its policy of soft evasion, which is traditional for Asian countries.

Consequently, experts' forecasts of the trade balance, given the volume of the agreement, for next year may be overstated, which will certainly have an impact on the dollar.

Meanwhile, the US may impose trade sanctions on the PRC, thereby exacerbating already difficult relations and forcing investors to choose trading regions again.

Egor Danilov,
Analytical expert of InstaSpot
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