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Mission not yet accomplished as Trump-Xi deal falls short of target

Ags - Fruit/Veg 114 China 2600 Cons. Discr. - Autos 952 Elections 105 Energy - Conventional 384 Energy - Crude Oil 264 Health Care 257 Trade Deals 906 U.S. 4625

U.S. merchandise trade with China increased by 2.5% year over year in August, the first increase since October 2018, official data shows. In dollar terms that was primarily the result of an import decline of just 0.8%, the lowest since Dec. 2018 when there was stockpiling ahead of concerns regarding additional tariffs as outlined in Panjiva’s chronicle of the U.S.-China trade war. The growth in exports has also accelerated with a 17.2% increase, up from 3.9% a month earlier and the highest value in dollar terms at $11.0 billion since March 2018.

Both metrics would suggest that the Trump administration’s policies of applying tariffs to restrain purchases from China along with the phase 1 trade deal purchasing commitments have borne fruit in the last reported data before the U.S. general elections on Nov. 3. 

From a longer-term perspective the trade deficit with China in the 12 months to Aug. 31 fell to $307 billion from $346 billion in 2016, though that was due to a 10.7% slide in imports offsetting an 8.3% decline in exports.

Trade war, COVID drag U.S.-China trade back to 2013 levels

Chart segments change in U.S. merchandise trade with China by direction on a monthly and three-month average basis.   Source: Panjiva

The future for relations between the U.S. and China could vary significantly under a Biden administration versus a second Trump administration in application if not in outcome. As discussed in Panjiva’s Sep. 30 research it’s unlikely that a Biden administration would immediately relax tariff pressure. A bigger question is whether the phase 1 trade deal reached between President Trump and the administration of President Xi, will be maintained or expanded.

Both the U.S. and China have recently recommitted to the phase 1 deal despite a significant shortfall in its implementation. While, as flagged above, U.S. exports to China have accelerated in August compared to July they are still well below the levels implied by China’s purchasing commitments under the phase 1 trade deal.

Panjiva’s analysis shows that total U.S. exports of the 548 products covered by the phase 1 trade deal reached $8.24 billion in August, up by 34.9% year over year and 35.1% higher than 2017. Yet, that was still well below the $11.93 billion implied by the trade deal’s terms and leaves a $47.50 billion year-to-date shortfall in 2020.

Among the main three categories of products the fastest rate of growth in the month of August was in energy which grew by 91.4% in 2020 versus 2017, led by a 237% surge in crude oil shipments. Exports of agricultural products climbed 71.1% higher, led by a 93.5% jump in soybean shipments. The latter will likely grow further given total export sales of soybeans to China reached 27.7 million tons in the first 39 weeks of 2020 compared to 12.6 million tons at the same point of 2017.

Between them though the two commodity categories only represented 36.3% of phase 1 exports in August and 41.6% of the targets. Exports of manufactured goods have improved, rising by 18.9% increase versus 2017 to reach $5.25 billion in August though that was well below the target of $6.97 billion.

Agriculture up-to-speed, others struggling in August

Chart segments change in U.S. exports in 2020 compared to 2017 to China of phase 1 trade deal products by industry.   Source: Panjiva

Yet, much of the growth in exports of manufactured goods can be explained by pharmaceuticals and optical / medical devices. Exports of pharmaceuticals jumped 385% higher than in 2017 according to Panjiva data and optical / medical devices which climbed 12.9% higher. Exports of all products increased by a more modest 5.5%, held back in large part by an 11.7% slide in exports of vehicles and parts linked to Tesla and General Motors despite a rebound compared to a year earlier.

Pharmaceuticals provide a pickup to trade deal commitments

Chart segments change in U.S. exports to China of phase 1 trade deal products by industry.   Source: Panjiva

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