Scepticism over whether Beijing can fulfil purchase targets under trade deal

The "phase one" agreement calls for Chinese purchases of US agricultural goods like soya beans (left) to increase by some US$32 billion over two years, or roughly US$16 billion a year, said a source who was briefed on the deal. PHOTO: REUTERS
The "phase one" agreement calls for Chinese purchases of US agricultural goods like soya beans (left) to increase by some US$32 billion over two years, or roughly US$16 billion a year, said a source who was briefed on the deal. PHOTO: REUTERS

WASHINGTON • China has pledged to buy nearly US$80 billion (S$108 billion) more in manufactured goods from the United States over the next two years, plus over US$50 billion worth of additional energy supplies, according to a source briefed on the trade deal to be signed today.

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 one" 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, said the source, who was briefed on the deal. 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 numbers, expected to be announced today 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, raising some scepticism over how it would be achieved.

Two other sources familiar with the phase one trade deal agreed with the rough breakdown of the purchases, without providing specific numbers. Trade Representative Robert 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.

When the phase one trade deal was struck on Dec 13 last year, 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 with 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 tariffs during his 18-month trade war with Beijing.

 
 
 
 

The US$80 billion increase for manufactured goods includes significant purchases of cars, 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, the No. 1 US exporter, whose new sales to China have ground to a halt over the past two years.

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

The source providing the purchase figures expressed scepticism 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. 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 fuelling scepticism.

And while seeing room for China to boost purchases of wheat, soya beans, sorghum, dried distillers grains and some corn, analysts and traders doubted whether it could absorb such a big increase.

Relying on the US so heavily could expose China to price and supply risks, they said.

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.

REUTERS

 
A version of this article appeared in the print edition of The Straits Times on January 15, 2020, with the headline 'Scepticism over whether Beijing can fulfil purchase targets under trade deal'. Print Edition | Subscribe