U.S. November export data were released earlier this week. While there are some improvements in some categories of merchandise exports in Nvember (particularly in major agricultural categories, liquefied natural gas and crude oil), China remains far behind its overall commitments in the U.S.-China Phase I Trade Agreement for first year purchases of U.S. goods. As reported in prior posts, both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, although recent comments from the Trump Administration indicate there are challenges in confirming changes in Chinese policy have been implemented in fact.
Prior posts on the U.S.-China Phase 1 Agreement can be found here: December 10, 2020, U.S.-China Phase I Trade Agreement – data through October 2020; while China has increased purchases of agricultural and some other products, China remains far behind on the agreed purchases in 2020 whether measured on a calendar basis or on a March 2020-February 2021 basis, https://currentthoughtsontrade.com/2020/12/10/u-s-china-phase-1-trade-agreement-data-through-october-2020-while-china-has-increased-purchases-of-agricultural-and-some-other-products-china-remains-far-behind-on-the-agreed-purchases-in-2020-w/; November 13, 2020, U.S.-China Phase 1 trade agreement – Data through September 2020; USDA and USTR report on agriculture portion, https://currentthoughtsontrade.com/2020/11/13/u-s-china-phase-1-trade-agreement-data-through-september-2020-usda-and-ustr-report-on-agriculture-portion/; October 10, 2020, U.S.-China Phase I Trade Agreement – first six months data on U.S. exports (March-August 2020) covered by the purchase commitments show China needing to triple purchases in next five months to meet first year commitments, https://currentthoughtsontrade.com/2020/10/10/u-s-china-phase-1-trade-agreement-first-six-months-data-on-u-s-exports-march-august-2020-covered-by-the-purchase-commitments-show-china-needing-to-triple-purchases-in-next-six-months-to-meet-fi/; September 12, 2020, U.S.-China Phase I Trade Agreement – How is China Doing to Meet Purchase Commitments for the First Year; a Review of U.S. Domestic Exports through July 2020, https://currentthoughtsontrade.com/2020/09/12/u-s-china-phase-1-trade-agreement-how-is-china-doing-to-meet-purchase-commitments-for-the-first-year-a-review-of-u-s-domestic-exports-through-july-2020/; August 8, 2020, U.S.-China Phase 1 trade agreement – review of U.S. domestic exports through June 2020, https://currentthoughtsontrade.com/2020/08/08/u-s-china-phase-1-trade-agreement-review-of-u-s-domestic-exports-through-june-2020/; July 10, 2020, U.S.-China Phase 1 Trade Agreement – limited progress on increased U.S. exports to China (through May), https://currentthoughtsontrade.com/2020/07/10/u-s-china-phase-1-trade-agreement-limited-progress-on-increased-u-s-exports-to-china-through-may/; June 5, 2020, U.S.-China Phase I Deal is Failing Expanded U.S. Exports Even Before Recent Efforts by China to Limit Certain U.S. Agriculture Exports as Retaliation for U.S. Position on Hong Kong, https://currentthoughtsontrade.com/2020/06/05/u-s-china-phase-i-deal-is-failing-expanded-u-s-exports-even-before-recent-efforts-by-china-to-limit-certain-u-s-agriculture-exports-as-retaliation-for-u-s-position-on-hong-kong/; May 12, 2020, U.S.-China Phase I Agreement – some progress on structural changes; far behind on trade in goods and services, https://currentthoughtsontrade.com/2020/05/12/u-s-china-phase-i-agreement-some-progress-on-structural-changes-far-behind-on-trade-in-goods-and-services/; January 19, 2020, U.S.-China Phase 1 Agreement – Details on the Expanding Trade Chapter, https://currentthoughtsontrade.com/2020/01/19/u-s-china-phase-1-agreement-details-on-the-expanding-trade-chapter/; January 15, 2020, U.S.-China Phase 1 Trade Agreement Signed on January 15 – An Impressive Agreement if Enforced, https://currentthoughtsontrade.com/2020/01/15/u-s-china-phase-1-trade-agreement-signed-on-january-15-an-impressive-agreement-if-enforced/.
An unusual aspect of the Phase 1 Agreement is agreement by China to increase imports from the United States of various categories of goods and services during the first two years of the Agreement with 18 categories of goods grouped in three broad categories (manufactured goods, agriculture and energy) and five services categories. Chinese imports of goods and services from the United States under the Agreement are supposed to increase by $76.7 billion in the first year over levels achieved in 2017 and in the second year by $123.3 billion over 2017 levels. The categories and tariff items included in the goods categories are reviewed in Annex 6.1 of the Agreement and the attachment to Annex 6.1. In the confidential version of the agreement, growth levels are provided for each of the 23 categories of goods and services.
While the COVID-19 pandemic has affected trade flows for most countries including both China and the United States and while bilateral relations between the U.S. and China have deteriorated since the signing of the Phase 1 Agreement, China continues to indicate its intention to honor the Phase I Agreement. Article 6.2 of the Agreement defines the time period for the purchase commitments as being January 1, 2020 through December 31, 2021. So the first year by agreement is calendar year 2020.
However, since the Agreement took effect in mid-February, my analysis has focused on the period since the agreement went into effect (for statistics, from March 1, 2020). This is consistent with the position that USTR and USDA took in an interim report released on October 23 looking at China’s compliance with its purchase commitments in agriculture. “It is worth noting that the Phase One Agreement did not go into effect until February 14, 2020, and March is the first full month of its effect. That means that we have seen seven months of agreement sales.” U.S. Trade Representative’s Office and U.S. Department of Agriculture, Interim Report on the Economic and Trade Agreement between the United States of America and the People’s Republic of China, AGRICULTURAL TRADE, October 23, 2020, Page 1.
For purposes of this post, I will look at the March-November data, but I will also reference January – November data.
Looking at U.S. domestic exports for the March – November period and projecting for full year 2020 shows China meeting 88.68% of first year agriculture commitments if the first year is measured from March 2020-February 2021 (a decrease from 91.57% when March-October data were examined last month). Total Phase 1 products are projected at only 58.60% (down from 59.83% through October) of first year commitments for the March-February year with manufactured goods at 52.65% (down slightly from 52.85% through October) and energy at 40.94% (down from 43.68% through October).
If calendar year 2020 is examined, then total Phase 1 goods are projected to meet 54.17% (up from 53.19% through October) with manufactured goods at 52.01% (down slightly from 52.10% through October), agricultural products at 75.59% (up from 69.97% through October) and energy goods at 34.36% (down from 35.51% through October).
Under either scenario, agricultural and energy product will exceed what was achieved in 2017 during the first year, though that will not be the case for manufactured goods. Under neither scenario do any of the three goods groupings meeting the first year agreed commitments.
To meet first year commitments, China would have to import monthly 3.743 times the product from the United States as was done in the first nine months in the next three months (December – February)(up from 3.55 times for data through October). If measured on a calendar basis, imports in December would need to exceed Phase 1 imports from the U.S. for the January-November period in total (i.e., December would need to be 11.67 times the monthly average for January – November.
Under the March-February analysis using data through November, the U.S. domestic exports of goods covered by Phase I to China would potentially exceed the actual 2017 U.S. exports ($88.301 billion projected vs. $86.795 billion 2017 actual). The calendar year projection is slightly below the 2017 actual at $86.795 billion. Moreover, since non-covered U.S. exports have declined in 2020 versus 2017, under neither scenario do total U.S. domestic exports reach the 2017 level of $120 billion ($115.601 for the March-February period; $108.458 for the calendar period).
U.S. export data on services are available quarterly for some of the relevant categories and annually for certain information. Total U.S. services exports to all countries are down 20.08% for the first eleven months of 2020. Services trade data with China for 2020 is available for the first nine months of 2020 and shows U.S. exports of services down 34.08% in the first three quarters of 2020 versus 2019. 2019 US exports of services to China were $56.537 billion, slightly higher than 2017 US exports of services to China of $54.981 billion. See U.S. Department of Commerce, U.S. Bureau of the Census, Bureau of Economic Analysis, U.S. International Trade in Goods and Services, November 2020 (January 7, 2021). The Phase 1 Agreement with China has large increases in U.S. services exports in the first year of the agreement ($12.8 billion over 2017 levels). Thus, the limited data available indicate that U.S. services exports to China will likely miss 2017 levels by more than 32% and will obviously not show any gain above 2017.
Looking at total U.S. domestic exports of goods to China for the period March-November 2020, U.S. exports were $84.859 billion ($9.429 billion/month) compared to $89.039 billion in 2017 ($9.893 billion/month). These include both products covered by the Annex 6.1 commitments and other products. For the January-November 2020 period total U.S. exports were $97.376 billion ($8.852 billion/month) compared to $107.399 billion in 2017 ($9.764 billion/month).
Total 2017 U.S. domestic exports of goods to China were $120.1 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Thus, the target for the first year of the U.S.-China Phase 1 Agreement is U.S. exports to China of $184 billion if non-subject goods are exported at 2017 levels.
Other U.S. domestic exports not covered by the 18 categories in Annex 6.1 were $33.314 billion in 2017 (full year). For the period March – November, non-covered products (which face significant tariffs in China based on retaliation for US 301 duties) have declined 18.05%, and total exports to China are down 4.69%. Looking at January – November figures show other U.S. domestic exports (i.e., not covered by the Phase I Agreement) were down 19.49% from comparable levels in 2017.
Thus, the first nine months since the U.S.-China Phase 1 Agreement went into effect suggest that U.S. domestic exports of the Annex 6 goods will be $88.302 billion if the full year shows the same level of increase over 2017 for each of the 18 categories of goods; non-covered products would be $27.300 billion, for total U.S. domestic exports to China of $115.602 billion. This figure would be below 2017 and dramatically below the target of $184.0 billion (if noncovered products remain are at 2017 levels; $177.516 billion with noncovered products at estimated 2020 levels) . The projected U.S. domestic exports to China would, however, be higher than the $109.72 billion in 2018 and the depresssed figure of $94.100 billion in 2019.
If one looks at January-November 2020, full year projections for 2020 exports of Annex 6 goods of $81.638 billion, other exports of $26.821 billion, for total domestic exports in 2020 of $108.459 billion even further behind 2017 and the year 1 target and also below 2018.
To achieve the target level of U.S. exports in the December 2020-February 2021 period, U.S. domestic exports of the 18 categories of goods in Annex 6.1 would have to be $86.317 billion ($26.772 billion/month) an amount that is 3.743 times the monthly rate of exports of the 18 categories to China in the March – November 2020 period ($7.153 billion/month).
If one uses January-November for comparison and for other US exports, with only one month’s data remaining in 2020, U.S. exports of goods covered by Annex 6.1 would have to be $77.590 billion more than the total amount of domestic exports to China in the first eleven months of 2020.
Chinese data on total imports from all countries (in U.S. dollars) for January-November 2020 show a decline of 1.6% from the first eleven months of 2019. http://english.customs.gov.cn/statics/report/monthly.html. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, November 2020 (in USD). China’s imports from the U.S. were up 6.1% during the same time period, but show imports from the U.S. substantially larger than U.S. domestic exports ($118.462 billion vs. $97.376 billion, though Chinese imports would be CIF value vs. FAS value for U.S. exports and may include U.S. exports to third countries or territories that end up in China).
The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-September 2017, March-September 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):
|Product category||March-November 2017||March-November 2020||% change 2017-2020 March-November||$ Value needed in next three months to reach 1st year of Agreement vs. projected 1st year|
|1. industrial machinery||$8,115.7|
|2. electrical equipment and machinery||$3,211.2|
|3. pharma- ceutical products||$1,649.6||$2,395.3|
|4. aircraft (orders and deliveries)||$11,789.6||$3,057.8||-74.06%|
|5. vehicles||$7877.2|| |
|6. optical and medical instruments|| $2388.0|| $2656.5|| +11.24%|
|7. iron and steel|| |
|8. other manufactured goods||$8,312.1||$10,275.7||+23.62%|
|Total for mfg goods|
|13. other agricultural commodities|| $3,372.5|| $3,417.0|| +1.32%|
|Total for agriculture||$14,312.2||$20,223.6||+41.30%||$13,128.1|
|15. liquefied natural gas|| |
|16. crude oil||$3,221.7||$5430.2||+68.55%|
|17. refined products|| $1,657.4|| $1291.2|| -22.09%|
|Total for energy||$5,479.4||$7,725.2||+40.99%||$18,348.7|
|Total for 1-18||$64,045.8||$64,378.0||+053%||$86,317.0|
China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries are down 1.5% in the first eleven months of 2020 while up 6.1% from the United States. Thus, the Phase 1 Agreement may have contributed to some improved U.S. export performance to China even if China is far away from meeting the year one commitments.
As reviewed in prior posts, the U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. It is unclear when/if it will occur under the incoming Biden Administration.
While there has been some progress on non-trade volume issues that are included in the Phase 1 Agreement and some significant improvements in exports of U.S. agricultural goods, there has been very little forward movement in expanding total U.S. exports of goods to China in fact and a sharp decline in U.S. exports of services to China.
The differences in economic systems between China and the United States have made reliance on WTO rules less relevant to the Trump Administration as those rules presume market-based economies and presently don’t address the myriad distortions that flow from the Chinese state capital system. Thus, the Phase I Agreement was an effort to move the needle in trade relations with China to achieve greater reciprocity. It has had some limited success to date. It will be interesting to see the approach on trade with China taken by the incoming Biden Administration.