What’s China’s speed limit on growth of US imports? Try US$100 billion by 2020, says JP Morgan

China could “realistically” ramp up its purchases of US goods by US$100 billion in the next two years as part of efforts to close the widening trade gap, according to research by JP Morgan.

The chances of a US$200 billion rise in goods and services purchases by 2020, as advocated by some US trade representatives, looks “challenging, if not impossible” because of constraints on both sides, according to the report authored by six analysts from the investment bank’s equities and policy research departments.

“Realistically, China could import US$10 billion more in auto by 2020, US$20-25 billion more in farm products, US$50 billion more in energy products, and US$25 billion more in general by imposing a 2 per cent import duty reduction which has some overlapping part with the auto calculation, ” wrote analysts headed by Zhu Haibin, chief China economist at JP Morgan.

China’s efforts to boost US imports is likely to find the most traction in sectors involving crude oil, liquid natural gas, farm products, tourism and financial services.

However, Zhu cautioned the trade rebalancing would have repercussions “as China may shift demand to the US from other countries”.

Trade tensions between the two nations have eased since a joint statement was issued on May 19 asserting China will “significantly increase” purchases of US goods, following the latest round of negotiations in Washington.

National Economic Council director Larry Kudlow told reporters on May 18 that China had agreed to purchase “at least US$200 billion” in additional goods and services as a way to help balance a trade surplus that reached US$375 billion last year.