‘Phase one’ fails to deliver, and a new approach to China is needed, says trade expert

So far, China has imported 38% of the $173.1-billion target for purchases of U.S. manufactured goods, agricultural products, and energy.

The “phase one” agreement that de-escalated the Sino-U.S. trade war is not paying off in massive sales of U.S. products, including food and agricultural exports, to China or in the long-term reform of Chinese trade practices, said Chad Brown, a senior fellow at the Peterson Institute for International Economics. “(President) Trump’s trade war has failed to address what really ails the U.S.-China trade relationship,” wrote Brown in a blog. “It is time for a new approach.”

Relations between the nations have cooled since the agreement was signed at the White House in mid-January, when Trump suggested that negotiations for structural change in Chinese policy would begin soon. The president, who blames China for the pandemic, has not pressed for trade talks.

Phase one was to run for two years. Its short lifespan may become an additional reason the victor on Nov. 3 will have to address the relationship between the world’s two largest economies.

So far, China has imported 38% of the $173.1-billion target for purchases of U.S. manufactured goods, agricultural products, and energy, said the Peterson Institute, a think tank. It reports each month on phase one sales to China. Sales have lagged in all three sectors.

Imports of U.S. food, agriculture, and seafood products totaled $12.9 billion at the end of September, according to data compiled by the think tank. The goal for the year is $36.6 billion worth of those goods.

“Put differently, China will need to import 62% of the total farm commitment in October, November, and December if it is to meet the 2020 target,” said Brown, an economist who worked at the White House and the World Bank before joining the Peterson Institute in 2018.

Before the trade war, soybeans made up 60% of U.S. farm exports to China, then the No. 1 customer for American ag products. At the end of September, $4.3 billion worth of soybeans had been sold to China, slightly less than half of the $8.9 billion expected for that point. Soybean sales to China are highest immediately after the fall harvest. Sales of corn and cotton have been strong, and pork sales have soared. “But for Trump’s aggregate metrics, even hundreds of millions of dollars of additional sales of pork, corn, and cotton pale in comparison to billions of dollars of lost soybean sales,” wrote Brown.

The phase one agreement did not address tariffs and did little to resolve several U.S. complaints, including intellectual property theft by China, requirements that U.S. companies take on Chinese partners, or China’s slow approval of GE crops. The emphasis on purchases by China may be interpreted by rivals as a sign that market share matters more to the United States than fair trade rules, said Brown.

“The United States and China need to get back to negotiating important policies that remain untouched by the phase one agreement,” he said.

Trump’s hard-line approach to China may endure, even if he is defeated, because it reflects widespread dissatisfaction among Americans over Chinese policies, trade experts told the Associated Press. “One of the reasons we got to where we were with Trump is that we exhausted the other options,” said Wendy Cutler, a former U.S. trade negotiator. She called the results of Trump’s approach “modest.”

Democratic presidential nominee Joe Biden has said it would be more fruitful for the United States to work with its allies to confront China, but he has not said what he will do about the tariffs imposed by Trump on $360 billion worth of goods from China.

Brown’s blog, “Trump’s phase one trade deal with China and the U.S. election,” is available here.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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