USTR again praises China trade deal progress

US-China relations are worsening fast on nearly every front — but US trade officials strike a dissonant chord by heaping praise on China for implementing an interim trade deal signed earlier this year.

That praise is all the more surprising because China's imports from the US so far this year have fallen short of ambitious targets set by the so-called "phase one" trade agreement. The deal committed China to increasing imports from the US by $200bn in 2020-21 relative to a 2017 baseline, including a total energy imports target for China of around $27bn in 2020 and another $42bn in 2021.

But total imports from the US to China in January-September ran below 2017 levels and amounted to just 53pc of targets set by the phase one deal, according to an analysis released today by Washington think tank Peterson Institute for International Economics.

US trade officials may have tactical and political reasons for insisting the trade deal is working. The US Trade Representative's office (USTR) is hoping to build on it with a follow-up deal if US president Donald Trump is re-elected, cementing in place an arrangement that will gradually reduce China's still-substantial trade surplus in trade with the US.

The USTR is also keen to highlight progress in one particular area — agriculture — because a trade war started by Trump in 2018 temporarily cut off Chinese markets for exporters of US farm products. To date, China has met about 71pc of its 2020 target under the phase one agreement, USTR and US Department of Agriculture said in a fact sheet released on 23 October.

In dollar terms, China's agricultural imports from the US amount to the 2017 levels, Peterson Institute senior fellow Chad Bown says. "While agriculture gets the bulk of the president's attention and (USTR chief Robert) Lighthizer's attention in terms of purchase commitments, it only makes up 22pc of the goods covered in the deal," Bown says.

Data compiled by the Peterson Institute show China lagging behind on every other purchase category. "Doing worst of all is the energy," Bown says. Cumulative Chinese energy imports from the US in January-September, in dollar terms, were roughly one third of required amounts, according to the institute's analysis.

Volumes of energy trade tell a different story, highlighting one of the flaws in the agreement — setting the target purchase amounts in dollar terms, rather than volume. US crude exports to China more than doubled to 367,000 b/d in January-August. But a decline in oil prices this year means China is falling short of the energy import target.

China's crude imports from the US rose to a record high of 952,000 b/d in September. China's purchases of US crude remained strong in recent months, sometimes despite uncompetitive economics — suggesting that Beijing has been leaning on state-owned firms to keep importing from the US. Whether that trend will continue if Trump loses re-election remains to be seen.

Either outcome of the US election promises uncertainty on the future of trade relations. Trump and Democratic candidate Joe Biden at their final debate last week accused each other of not being tough enough on China. "What I would make China do is play by the international rules, not like (Trump) has done — he has caused the deficit of the China to go up, not down," Biden said.

Trump's administration, meanwhile, is accelerating efforts to decouple the two economies by introducing investment barriers and targeting Chinese technology firms with sanctions.

By Haik Gugarats