China to pump up US car, aircraft, energy purchases in trade deal: Source

In a photo from July 4, 2018, a worker packs bottles of soybean oil made from imported US soybeans at Liangyou Industry and Trade Co., Ltd in Qufu, Shandong.
In a photo from July 4, 2018, a worker packs bottles of soybean oil made from imported US soybeans at Liangyou Industry and Trade Co., Ltd in Qufu, Shandong.PHOTO: REUTERS

WASHINGTON (REUTERS) - China has pledged to buy nearly an additional US$80 billion (S$107.8 billion) of manufactured goods from the United States over the next two years, plus over US$50 billion more in energy supplies, according to a source briefed on a trade deal to be signed on Wednesday (Jan 15).

Aiding a sector that enjoys a rare trade surplus with China, Beijing would also boost purchases of US services by about US$35 billion over the same two-year period, the source told Reuters on Monday.

The Phase 1 agreement calls for Chinese purchases of US agricultural goods to increase by some US$32 billion over two years, or roughly US$16 billion a year, the source said.

When combined with the US$24 billion US agricultural export baseline in 2017, the total gets close to the US$40 billion annual goal touted by US President Donald Trump.

The US$32 billion agriculture increase over 2017 was confirmed by Mr Myron Brilliant, the US Chamber of Commerce’s head of international affairs, who spoke to reporters on Wednesday in Beijing.

The numbers, expected to be announced on Wednesday at a White House signing ceremony between Mr Trump and Chinese Vice Premier Liu He, represent a staggering increase over recent Chinese imports of US manufactured goods.

Two other sources familiar with the Phase 1 trade deal agreed with the rough breakdown of the purchases, without providing specific numbers.

A spokesman for the US Trade Representative’s office could not immediately be reached for comment.

When the Phase 1 trade deal was struck on Dec 13, US officials said China had agreed to buy US$200 billion in additional US farm products, manufactured goods, energy and services over the next two years, compared to the baseline of 2017.

They said they would publish targets for the four broad areas, but would keep details of specific products classified to avoid market distortions.

Mr Trump had mainly touted the increased farm exports, which would benefit a major political constituency that has been battered by Chinese retaliatory tariffs during his 18-month trade war with Beijing.

Company executives have been waiting eagerly for details of what other US goods China would be buying more of, aside from farm products, after 18 months of tit-for-tat tariffs that have stalled US business investment.

MANUFACTURING CHALLENGES

The US$80 billion increase for manufactured goods includes significant purchases of autos, auto parts, aircraft, agricultural machinery, medical devices and semiconductors, said one of the sources, without giving the names of any specific suppliers.

The aircraft would likely be built by Boeing Co, the No. 1 US exporter, whose new sales to China have ground to a halt over the past two years. That would be a welcome shot-in-the arm for the planemaker, which has seen shares and earnings plummet as its best-selling 737 MAX aircraft remains grounded due to two fatal crashes in 2018 and 2019.

The source providing the purchase figures expressed skepticism about manufactured goods pledges by Beijing since the US- China trade deal does not address any of the non-tariff barriers that have kept these US goods out of the Chinese market for decades, including procurement rules, product standards and subsidies to Chinese state-owned firms.

With Chinese car sales flagging and excess domestic assembly capacity on the rise, it’s difficult to see the need for China to purchase significantly more US-built cars. Among the most popular US-built vehicles sold in China are BMW and Mercedes-Benz sport-utility vehicles.

China also has major industrial policy goals to dominate the very manufacturing sectors in which it has pledged to pump up purchases of US goods, further fueling skepticism.

Many economists and experts are dubious that the Phase 1 trade agreement will be implemented as written, despite what US officials describe as an important enforcement clause in the deal.

That enforcement mechanism allows grievances to be aired through escalating consultations that would reach Chinese Vice Premier Liu He and US Trade Representative Robert Lighthizer.

If a US claim of Chinese non-compliance cannot be resolved, Washington would have the right to reimpose tariffs on Chinese goods in proportion to the economic damage alleged. But nothing would preclude China from retaliating, returning the two sides to the current status quo, people familiar with the deal said.

Mr Lighthizer on Monday called the deal a “huge step forward” for US- China trade relations and “a really, really good deal for the United States”. He told Fox Business Network that Beijing’s compliance would be monitored closely.

“We expect them to live up to the letter of the law. We’ll bring cases, we’ll bring actions against them if they don’t,” Mr Lighthizer said.