US-China trade deal a ‘historic failure’ with purchases more than 40 per cent short of target, PIIE report says

China “bought none” of the additional US$200 billion of exports promised under the phase-one trade deal with the United States, a new report looking at the performance of the two-year deal signed under the Trump administration said.

The US and China signed their long-awaited deal in January 2020, and the terms outlined in the agreement took effect one month later, with China committed to buying an additional US$200 billion worth of goods and services over 2020-21, relative to 2017’s levels.

But according to a report released by the Peterson Institute for International Economics (PIIE) on Monday, China bought only 57 per cent of the US exports it had committed to purchase under the agreement, which was “not even enough to reach its import levels from before the trade war”.

“Two years ago, president Donald Trump signed what he called a ‘historical trade deal’ with China that committed China to purchase US$200 billion of additional US exports before December 31, 2021. Today, the only undisputed ‘historical’ aspect of that agreement is its failure,” said Chad Bown, a senior fellow at the PIIE, in the report.

“One lesson is not to make deals that cannot be fulfilled when unforeseen events inevitably occur – in this case, a pandemic and a recession. Another is not to forget the complementary policies needed to give an agreement a chance to succeed.

“The emergence of the Covid-19 pandemic undermined any chance of success. Public health-related lockdowns and a short economic recession were accompanied by a temporary collapse in goods trade globally, even if China’s imports were mostly spared. Restrictions on mobility also decimated US services exports like tourism and business travel.”

As part of the deal, China committed to increasing its purchases of certain US goods and services in 2020 and 2021 by at least US$200 billion over 2017 levels. Under the deal, China agreed to buy at least US$227.9 billion of US exports in 2020 and US$274.5 billion in 2021, making a total of US$502.4 billion over the two years.

“In addition to the unrealistic US$200 billion target, 18 months of trade war tariff escalation designed to decouple the two economies meant US goods exporters started from a hole,” added Bown.

“They would first have to reestablish connections with Chinese buyers to climb out of the 2019 trough – US$13.6 billion lower than the agreement’s 2017 baseline level – before chipping away at the additional US$200 billion.

“China ended up buying none of that extra US$200 billion of US exports it had promised to purchase. In 2020–21, China fell US$13.6 billion short of reaching even the baseline level of purchases.”

According to the report, agriculture purchases under the phase-one trade deal reached 83 per cent of the total commitment. Pork, corn, wheat and sorghum exports all beat their targets under the deal, with corn at 1,176 per cent.

But, according to Bown, this was “not necessarily because of the agreement” as an African swine fever outbreak led China to increase pork imports from the US in 2019, while corn and wheat imports increased after it began to comply with a 2019 World Trade Organization ruling.

Purchases of covered manufactured goods, which were “the most economically significant part of the deal”, reached 59 per cent of the overall target.

China’s purchases of US energy products reached only 37 per cent of the commitment.

The US-China trade war saw tariffs placed on a total of US$550 billion worth of goods, including US$350 billion originating in China, further straining the relationship between the world’s two largest economies.

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This has extended under the new administration despite a meeting between President Xi Jinping and US counterpart Joe Biden in November.

“Trump’s phase-one agreement with his ‘very, very good friend’ President Xi Jinping was not a total washout. The deal did halt his spiralling trade war,” added Bown.

“And several of its elements should be kept, notably China’s commitments to remove technical barriers to US farm exports, respect intellectual property, and open up its financial services sector.”

Last week, deputy US Trade Representative Sarah Bianchi said China had failed to meet its commitments under the two-year phase-one trade deal that expired at the end of 2021, and discussions were continuing with Beijing.

“You know, it is really clear that the Chinese haven’t met their commitment in phase one. That’s something we’re trying to address,” Bianchi told a virtual forum hosted by the Washington International Trade Association.

According to data released on Tuesday, the US’ goods trade deficit with China rose by 14.5 per cent to US$355.3 billion, which was the biggest since the 2018 record of US$418.2 billion.

“The Biden administration was not to blame, as China was never on pace to meet its purchase commitments. Trump’s deal was agreed on December 13, 2019, and signed on January 15, 2020. By the end of June 2020, China’s purchases were at only 54 per cent of the prorated target; they reached 59 per cent of the year-end commitment for 2020,” said Bown.

“China was never able to catch up, as the agreement was backloaded, with additional purchase commitments for 2021 that were more than 60 per cent higher than 2020.”