US-China trade: soybeans, corn and cars surge, but Beijing still not close to meeting demands of deal

A combine harvester gathers soybeans during the autumn harvest in the US state of Illinois. Soybean sales to China soared by 432 per cent in August, compared with June. Photo: Bloomberg

Exponential increases in purchases of some politically important American goods such as soybeans, corn and cars have failed to significantly move the needle towards meeting China’s annual import commitments in the phase one trade deal ahead of November’s US elections.

A South China Morning Post analysis of detailed US customs data for August shows that China’s imports of goods covered by the deal, signed in January, were up 25 per cent relative to June.

The incremental increase came despite sales of corn to China soaring 513 per cent in August compared with June – when the US Census Bureau started compiling official monthly statistics to track trade deal purchases – while soybean sales surged 432 per cent and car sales were up 97 per cent.

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This suggests that even as the superpower rivalry seems to test new depths on a weekly basis, both sides are keen on keeping the trade deal alive, given that it is currently the only constructive part of their relationship.

“It seems China is acting in good faith for the agriculture purchases. But this might also reflect strategic considerations, too, amid food security considerations and persistent food inflationary pressures. So, agriculture seems, somewhat ironically, like a win-win for now,” said Nick Marro, global trade lead at the Economist Intelligence Unit.

In volume terms, China’s purchases of US soybeans saw a year-on-year increase of 15 per cent in the first eight months of 2020. Pork purchases were up 134 per cent and corn sales rose 50 per cent. Strong daily export purchases of soybeans continued through September, which is expected to be another bumper month for agricultural goods ahead of November’s presidential election.

However, despite the spending spree during the summer months, China is nowhere near meeting the overall targets set out in the phase one trade deal. The agreement dictates that China’s purchases should be US$200 billion higher than 2017’s levels, and on those terms, China is still miles away.

“With two-thirds of 2020 now in the books, China has purchased less than one-third of the US exports Trump pledged it would buy this year under his ‘historic’ phase one deal,” said Chad Bown, trade economist at the Peterson Institute for International Economics.

Bown’s research shows that China’s purchases of covered products totalled US$47.6 billion over the first eight months of the year, compared with a year-to-date target of US$95.1 billion.

In the agricultural sector, despite the recent increase in purchases, China met only 43 per cent of its purchase targets through August. It also met only 60 per cent of its purchase targets for manufactured products, and 27 per cent of its targets for energy products.

“An apparent commitment to proceed as planned and keep the deal in place, despite China running behind schedule on purchases, may be designed to ensure minimal disruptions during the run-up to the US general elections,” Panjiva analysts recently wrote. “Notably, there was no specific mention of tariffs as part of the second-term plan, despite them being central to policy execution in the first term.”

But on the other hand, with the US election just over a month away, the deficit from what Trump promised and what China is delivering may make the phase one trade deal a tougher sell on the campaign trail, even in the Farm Belt states that were supposed to be its greatest beneficiaries.

If Trump continues to lag behind in the polls, he might view the phase one agreement as a suitable sacrificial lamb
Stephen Olson, Hinrich Foundation

“The broader relationship has been on such rocky ground, I think both countries have been trying to keep the trade agenda on a low simmer,” said Stephen Olson, a senior fellow at the Hinrich Foundation and a former US trade negotiator. “This will probably hold through the election, although an ‘October surprise’ is always possible.

“If Trump continues to lag behind in the polls, he might view the phase one agreement as a suitable sacrificial lamb, terminating the agreement in order to burnish his ‘tough on China’ credentials while stepping up his attacks on (opposition candidate Joe) Biden for being ‘weak’ on China.”

Trump trails Biden in some polls of crucial farming states such as Illinois, North Carolina and Minnesota, while his lead in Iowa has been cut to less than 1 per cent.

The phase one deal could face further political complications in the form of a State Department-backed move to ban products made using forced labour in Xinjiang.

China’s imports of US cotton rose 44 per cent in the two months to August, even as the US slapped a list of Chinese apparel and garment companies on an Entity List banning them from accessing US goods.

US ban on China’s Xinjiang cotton ‘would wreak havoc’, leading apparel group says

Earlier in September, hotly anticipated Withhold Release Orders (WROs) on Xinjiang cotton were watered down, reportedly after a week of lobbying from the US Department of Agriculture and the Office of the US Trade Representative over fears that American cotton farmers would become collateral damage. The WROs were subsequently narrowed to five companies, rather than a mooted ban on all Xinjiang cotton products.

Xinjiang produces 20 per cent of the global cotton supply, meaning a ban would have had a huge impact on not only Chinese and Asian supply chains, but also on the US firms that produce in those markets, many of whom have warned against sweeping legislation – even as they attempt to rid their own supply chains of Xinjiang-made cotton.

China last week provided more details of its Unreliable Entity List which would blacklist firms perceived to have acted against China’s interests, and while no companies have yet been named, it is widely viewed as retaliation for Trump’s attacks on Chinese tech giants ByteDance and Tencent, the owners of TikTok and WeChat, respectively.

“While the Trump administration’s continued escalating actions against China remain bounded by the president’s overriding desire to protect the phase one trade deal, it appears to be finding increasing latitude within those bounds as China hawks within the administration seek to decouple the world’s two largest economies,” analysts at Beacon Policy Advisers, a US research firm, wrote in a note.

“China’s retaliation has remained restrained, though this may be due to Chinese interest in the decoupling rather than a disinterest in punishing the US, at least in part.”

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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