China grants Trump more imports: by when is uncertain, and how is open to question

A provisional agreement in the US-China trade dispute was reached at the weekend. Both countries announced a willingness to relinquish punitive customs duties and other trade barriers against their trading partner for the time being. In particular China has declared its readiness to make a substantial contribution to reducing its large advantage in the bilateral balance of trade of the two countries by significantly increasing its imports from the US. The import value in question is USD 200bn, which is USD 70bn more than China’s imports of US goods last year. Besides this Beijing has agreed to take more rigorous action against theft of intellectual property and to strengthen patent law. It was not only desirable but also extremely likely that the confrontation between the two trade heavyweights would end in a negotiated settlement rather than an actual exchange of blows. After all, the two countries would have much to lose from reciprocal punitive customs duties and reduction of their joint trading volume – reduced sales volume in US agriculture, job losses in the Chinese export sector and higher costs and consumer prices in both countries. A solution in which trade between the two countries is increased is thus the better alternative by far.

It is nevertheless open to question how easy it will be for China to increase its imports from the US from USD 130bn currently (2017) by more than 50 per cent. It is appropriate that no time framework has yet been announced. It is hardly likely to be achieved within a year, however. The categories of goods currently under discussion are, in particular, agricultural commodities and foodstuffs as well as liquid petroleum gas and aircraft. China’s greatest scope for increasing US imports is surely in energy sources: the country purchases just under two per cent of its total fuel imports and six per cent of its gas imports from the United States. Nevertheless, imports would have to be increased considerably from their current levels of USD 2.4bn and USD 1.4bn respectively. In terms of agricultural products, by contrast, the US are already now China’s most important supplier. China covers about 20 per cent of its agricultural imports with US products – in 2016 imports of foodstuffs and agricultural commodities together amounted to just under USD 30bn. Much more than doubling of this volume is hardly conceivable. After all, China buys more than 50 per cent of its aircraft in the US, worth just over USD 13bn in 2016. Not only is the upward potential visibly limited here. In view of the long lead times in aircraft production it will take years before any growth is noticeable.

The trade dispute has been put on ice for the time being, which should in principle be seen in a positive light. However, uncertainty has not been fully dispelled, because it is likely not only to be difficult for China to increase its imports to the desired extent. In order to reduce what is a high trade surplus from a Chinese point of view, Chinese exports to the US must be prevented from increasing. Even now they are about 13 per cent above the previous year’s level, however. If this trend continues, the trade balance would at best remain constant, even with an increase in imports by USD 70bn. For the US president reduction of the large deficit with China is at the heart of the trade dispute. If no progress is made there, the issue of punitive customs duties could make a swift return to the agenda.

 

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