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Trump’s trade deal with China: More bluster than boom

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Brian Kilmeade, Fox News: “So they were living up to it? They were living up to the deal?”

President Trump: “They are living — they are more than living up to it. Last week — because they know I'm very angry at them, because this should have never happened — they made the largest order of corn, the largest order of soybeans in history. They made the largest beef order that they've done in a long time.”

Exchange on “Fox & Friends” on Fox News, Aug. 17, 2020

Before the coronavirus pandemic began, many analysts and trade-watchers doubted that China would be able to purchase an added $200 billion of goods from the United States over two years.

Trump is not a doubter, and on Fox News this week, he said China was “more than living up to” its commitments under the “phase one” trade deal negotiated by his administration. He mentioned recent orders for American corn, soybeans and beef, which would not yet be reflected in monthly trade data.

Viewers would get the impression that China’s buying spree is proceeding apace six months into the new agreement. But the purchase targets were aggressive under normal circumstances — and now, with a global pandemic bearing down on the economy, the official U.S. data show Chinese imports lagging badly. Leading analysts said it’s unrealistic to expect China will make up the difference in what remains of 2020.

The Facts

As part of a trade agreement that took effect Feb. 14, China pledged to buy goods worth $200 billion from U.S. suppliers above 2017 levels. The services and agricultural, manufactured and energy products covered by the deal all have their own purchase targets. The $200 billion total purchase commitment is spread out over 2020 and 2021.

The purchase targets are not monthly or quarterly. The first one covers all of 2020. China committed to purchase about $64 billion above 2017 levels for the year.

How’s it going so far?

Well, U.S. exports to China have been declining this year. The trade agreement uses official customs data for its targets. The most recent U.S. data show Chinese purchases down 5 percent in June compared with the previous month. Exports to China are down 4.6 percent when comparing the first half of 2020 with the first half of last year, and down 16.5 percent compared with the corresponding period in 2017.

“No, they’re not on target,” said Mary E. Lovely, a senior fellow and Chinese trade expert at the Peterson Institute for International Economics. “Even if they buy huge amounts, they’re not going to be on target.”

Derek Scissors, an expert on the Chinese economy at the American Enterprise Institute, wrote in an email: “It’s not on track for 2020 and 2021 targets are tougher. China is falling short in agriculture and falling far short in energy, manufacturing, and services.”

David Dollar, a senior fellow at the Brookings Institution who studies the Chinese economy and served as an Obama administration economic official based in Beijing, wrote in an email that “China was supposed to buy a lot more relative to 2017, so it is clearly not meeting the commitments.”

China has released its customs data for July, which is one more month than the United States, but it “does not change this picture,” Dollar wrote.

In the first half of the year, China imported $40.2 billion in products covered by the trade deal, less than one-quarter of its total 2020 purchase commitment, according to a tracker from the Peterson Institute. “Through the first six months of 2020, China’s purchases of all covered products were thus only at 46 percent (US exports) or 47 percent (Chinese imports) of their year-to-date targets,” it says.

Energy purchases in particular have been glacial. U.S. customs data through June show China imported 5 percent of the energy total for 2020 in the first six months of the year.

“Economists in general were negative about the purchase commitments right from the start as government-to-government agreements are not how most trade is organized,” Dollar wrote. “For example, the two sides agreed that the U.S. would sell more oil and gas to China. … U.S. firms are not particularly interested in selling to China at current market prices.”

What about the corn, soybeans and beef Trump mentioned? They come advertised as the largest orders from China “in history” or “in a long time,” although Trump did not give specifics, and his boasts are often untrue. The White House did not respond to our questions.

Lovely: “It’s really hard to see that this is going to change it. Plus, this is only in one category: agriculture. And the phase one deal has purchase targets for four categories.”

Scissors: “China’s recent agriculture orders could be priced highly enough to catch up to its commitments in dollar terms — pricing isn’t public. But agriculture is only one segment of overall purchases and actually the smallest. In overall dollar terms, recent orders can’t possibly get China on track for phase 1 as a whole.”

Dollar: “Since August 1, there have reportedly been some orders for agricultural products such as soybeans and corn. Those orders could still be canceled so they may not materialize. If they do materialize, it is not plausible that they would be so large as to change the conclusion that China is not meeting the commitment.”

Jeffrey J. Schott, a Peterson Institute senior fellow and trade expert: “The ability to fulfill the orders may have been impacted by the derecho that wiped out much of the corn and soybean crop in Iowa a few days ago. Even then, given current prices and reduced plantings of soybeans, it’s hard to see how China could meet the dollar targets set for farm purchases. And China is nowhere close to the targets for purchases of energy products and manufactures.”

At an Aug. 14 briefing, Chinese Foreign Ministry spokesman Zhao Lijian said that “the covid-19 pandemic and U.S. restrictive measures including stronger export control against China have had some impact on China’s import of certain goods and services.”

“Under current circumstances, the two sides need to work together and strengthen cooperation to overcome the challenge,” he said. “We hope the U.S. will stop restrictive measures and discriminatory practice against Chinese companies to create conditions for implementing the phase one trade deal.”

“Stronger export control” and “restrictive measures” refer to the Trump administration’s restrictions on supplying Chinese tech companies such as Huawei and ZTE. For China, those trade actions create a more difficult political environment in which to ramp up U.S. imports, according to the analysts we surveyed, but the impact within the trade deal itself would be limited to manufactured semiconductors (while energy is the sector lagging the most).

“Under perfect health, economic, and political conditions, China might have reached its 2020 purchase commitments,” Scissors wrote. “But even without the pandemic, ideal economic and political conditions were unrealistic from the start. The Trump administration knew when signing the deal that it was going to act against Chinese technology firms and should have expected China to game the purchases — for example what country’s oil and gas to buy — because that’s what always happens.”

The Pinocchio Test

Trump said China was “more than living up to” its commitments under his signature trade deal. The facts show the opposite. Instead of booming past 2017 levels, Chinese purchases of U.S. goods are in decline this year.

Six months of data show Chinese purchases are far behind the target for 2020, to say nothing of 2021. None of the analysts we surveyed thought these goals were realistic to begin with or plausible now, amid an economic slowdown and a pandemic.

In the first half of the year, China completed purchases for less than one-quarter of its annual target, and only 5 percent of the energy it committed to buy. Trump earns Three Pinocchios, as the Chinese are making some purchases. As for Trump’s claim “they made the largest order of corn, the largest order of soybeans in history,” there’s no evidence yet to support that, and the White House declined to provide any. We’ll be keeping an eye on the trade data to see if this fact check needs an increase in the Pinocchio rating.

Three Pinocchios

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