South China Morning Post
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US and Chinese flags are adjusted before the opening session of trade negotiations between US and Chinese trade representatives at the Diaoyutai State Guesthouse in Beijing on February 14, 2019. US-China relations have deteriorated since then. Photo: Reuters
Opinion
Neal Kimberley
Neal Kimberley

Next US president must reshape US-China trade relationship

  • China needs agricultural products that the US can supply and American consumers want goods which China can provide. Whoever wins the White House will need to craft an economic relationship that works for both sides
Neal Kimberley
Neal Kimberley
Why you can trust SCMP
Although the febrile atmosphere of a US presidential campaign is not a good time to expect rational discussion of the US-China trade relationship, this is not an issue that will go away. Whoever is inaugurated as US president on January 20, Beijing and Washington need to craft an economic relationship that works for both sides.
Talk of a new cold war is unhelpful. It would be in no one’s interests to go down that route.

What always should be remembered is that China needs products that the United States can supply and that US companies and consumers need and want goods that only China has sufficient capacity to provide. Agriculture is a case in point.

A campaign to avoid food wastage, championed by President Xi Jinping, makes sense but is even more understandable in the context of China’s need to maintain food security. Even with optimal harvest conditions, China would still need to rely on grain imports to satisfy the nation’s requirements, and harvest conditions are rarely optimal.
There is also the impact of urban drift and resultant rural depopulation. The simple reality is that an increasing number of Chinese city dwellers are reliant on fewer Chinese agricultural workers to meet their food requirements.
Then there are other issues, such as the decimation of China’s pig population through African swine fever, and, just in the last month, the negative impact on corn output in the northeastern province of Heilongjiang caused by three inland typhoons.

Such situations, as policymakers in Beijing will be acutely aware, naturally lead to higher food prices. Indeed, in August, food prices in China rose by 11.2 per cent year on year, following July’s 13.2 per cent increase.

But this is where the United States can play a part, and China can benefit.

Indeed, as regards corn alone, the most recent weekly report from the US Department of Agriculture, revealed net US sales of 2.139 million tonnes for September 11-17, of which 566.4 tonnes were bought by China alone.

As for Washington, although the Trump administration would undoubtedly demur, there is increasing evidence that the US recourse to tariffs on Chinese goods, in pursuit of a recalibration of the existing bilateral trade relationship, is a strategy which looks increasingly out of kilter with the needs and wants of US companies and consumers.

Additionally, there’s a persuasive argument that as tariffs on imports from China are levied at the point of entry into the United States, it is the US importers who are actually picking up the tab, not the Chinese exporters upon whose goods the tariffs are levied. So, it’s not difficult to see that tariffs might not be playing well with some big US corporations.
It is surely no coincidence that, with the World Trade Organization having concluded earlier this month that Washington’s tariffs on Chinese goods violated international rules, some 3,500 US companies have now filed cases against the Trump administration over the levying of such tariffs.

Two takeaways from China’s blockbuster August economic data

And among these 3,500 firms that have filed suits at the US Court of International Trade are some very big US companies, among them Ford Motor Co, Home Depot, Target Corp, Tesla Inc and Walgreen Co.
In the meantime, US demand for Chinese goods, tariffs or no tariffs, remains. China’s overall exports rose by 9.5 per cent in August, year on year, but, pointedly, Post calculations show that China’s trade surplus with the US rose 27 per cent in August compared to the same month last year.

Meanwhile, with the peak shipping season for US ports running from August to October as US retailers ready themselves for Christmas, California’s Port of Long Beach, “had the best August in its 109-year history” last month.

It moved “725,610 twenty-foot equivalent units (TEUs) of container cargo,” the port announced on September 9, which was “a 9.3 per cent increase compared to August 2019”. Imports rose 13 per cent to 364,792 TEUs.

Trade with East Asia represents more than 90 per cent of shipments through the Port of Long Beach and China is Long Beach’s biggest partner for imports into the US as measured by TEUs.

US demand for Chinese goods is still buoyant, even with Trump-imposed tariffs. If tariffs were meant to stem the flow of Chinese goods into the US, they are not working.

Neither Beijing nor Washington can be really satisfied with the current situation. Inauguration Day would be a timely moment for Beijing and Washington to start reshaping the trade relationship.

Neal Kimberley is a commentator on macroeconomics and financial markets

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