Since the beginning of the agreement, China has never been on track to meet its obligations to purchase goods, but several factors have been at work. Implementation of the agreement in the first year has been affected by the devastating economic impact of the COVID-19 pandemic, with China`s economic growth of only 2.3%. (The pre-pandemic forecast was 5.8 percent.) Global trade suffered in 2020 and fell by 12% compared to 2019. China`s trade fared better than most, with total imports only 1% lower than in 2019. But by mid-December 2020, China had bought only 59 percent of the U.S. goods it had committed to buy in the first full year of the deal (see Figure 1). Data release note: This update is based on data from October 2020, which was released on October 25, 2020. November 2020 for Chinese imports and U.S. exports – preliminary data on U.S.
exports to China, which will be monitored under the agreement, will now be released ahead of the full release scheduled for December 7, 2020. The next update is based on November 2020 data released on December 25, 2020 (Chinese imports) and December 23, 2020 (U.S. exports). Preliminary U.S. export data for October recorded no aircraft imports (Harmonized Tariff Schedules 8800 and 8802); All data revisions will be included in a revision published on December 7. China Customs reports that China`s aircraft imports (8802) in October were only $506 million. Exports from the U.S. aviation sector since January 2020 now represent only 19% of the prorated revenues expected under the first phase of commitments. The Boeing 737 MAX crashes in late 2018 and 2019 didn`t help.
The model was grounded around the world, Boeing stopped production for nearly five months, and like many buyers, China canceled its orders. Yet in September 2021, Biden`s Commerce Secretary Gina Raimondo blamed the government in part for the failure to pick up sales, saying, “There are tens of billions of dollars of planes that Chinese airlines want to buy, but the Chinese government is standing in the way.” To date, U.S. exports in the first phase of the first phase are $20 billion behind the pace of 2017 and $37 billion less than the estimated target. However, aircraft are the only part of the legal text of the agreement that allows credit for “orders and deliveries” (emphasis added) and opens up the possibility for China to fill this gap by placing orders for future deliveries before the end of December 2021. U.S. auto exports to date are also estimated at more than $18 billion, reaching only 39 percent of the proportional target. Before the trade war, China was the second largest U.S. export market for vehicles. Trump imposed a 25% tariff on auto parts imported from China in the summer of 2018, and China immediately retaliated with a 25% tariff on U.S. auto exports. Rising costs and the resulting uncertainty have made it difficult for U.S.-assembled cars to compete in the Chinese market. Companies such as Tesla (California) and BMW (South Carolina) have shifted production destined for China in the United States to other foreign markets.
U.S. auto exports have fallen and have not recovered since. China has bilateral investment treaties with more than 100 countries and economies, including Austria, the Belgo-Luxembourg Economic Union, Canada, France, Germany, Italy, Japan, South Korea, Spain, Thailand and the United Kingdom. China`s bilateral investment treaties include expropriation, arbitration, most-favoured-nation treatment and repatriation of investment products. They are generally considered weaker than the investment treaties that the United States wants to negotiate. Tai also warned that the Biden administration “has serious concerns about China`s state-centered, non-market-based trade practices that were not addressed in the first phase.” In fact, during the first phase of the agreement, China did not accept any commitments affecting its subsidies or state-owned enterprises. Worse still, because the Phase One agreement did not negotiate the lifting of China`s retaliatory tariffs, the Chinese government introduced an exclusion process in which it decides which U.S. exports to buy from China, thereby strengthening the role of the Chinese state and state-owned enterprises in the Chinese economy.
Yet Tai did not give details or suggest that the government intends to participate in negotiations with China in the “second phase.” For all non-covered products, which accounted for 29 percent of total Chinese merchandise imports from the U.S. and 27 percent of total U.S. merchandise exports to China in 2017, the Phase One agreement does not include a legal target. In October 2020, China`s imports of all uncovered products from the United States amounted to $28.4 billion, 25 percent less than at the same time in 2017. U.S. exports of all uncovered goods to China stood at $22.0 billion in September, down 13% from the same period in 2017 (October data for uncovered products will be available on December 7, 2020. Although the agreement also sets targets for China`s purchases of certain services traded in the United States, this data is not reported monthly and is not covered here. The agreement also includes targets for 2021, which are not presented here. An Indo-Pacific digital trade deal is currently under consideration, an idea that lacks ambition and reads like a consolation prize after the United States. Withdrawal from the Trans-Pacific Partnership, the precursor to the CPTPP. The very perspective of the United States, which is seeking an 11-page digital deal while China simultaneously negotiates thousands of pages of rules covering all aspects of its trade relations with the same CPTPP countries, is demoralizing.
Today, the U.S. would have to negotiate improvements to labor, environmental, auto rules of origin, state-owned enterprises, and intellectual property rights regulations to survive a congressional vote. While it may not be easy for the CPTPP in one form or another to pass a Democratic-controlled Congress, even with progressive priorities, this is precisely why trade requires presidential leadership. As for whether CPTPP countries would be open to improving the text, I have a feeling that they would accept it if it meant bringing the United States back to the region as a counterweight to China. It would be more attractive for the Biden administration to turn the recently announced Indo-Pacific economic framework into something substantial. In recent interviews, Trade Minister Gina Raimondo presented the framework as a “new type of agreement” that will be “more robust” than the CPTPP, but omitted all details about the timing, structure or countries involved. If the framework were to combine new trade rules with trade agreements and national security priorities such as export controls, supply chains and 5G, this could be important. However, it`s a big “if,” and it`s not clear what the administration can realistically achieve over the next two years, especially if it wants to stay away from anything that would require congressional approval or stir up the progressive left.
China maintains 16 free trade agreements (FTAs) with its trade and investment partners and negotiates or implements eight other free trade agreements. China`s FHA partners are ASEAN, Singapore, Pakistan, New Zealand, Chile, Peru, Costa Rica, Iceland, Switzerland, Maldives, Mauritius, Georgia, Korea, Australia, Hong Kong and Macau. Under the agreement, China has committed to purchase as much as $63.9 billion of covered goods from the United States by the end of 2020 compared to these 2017 baselines. The definition of the baseline for 2017 using Chinese import statistics implies a purchase target of $173.1 billion for 2020 (red in panel a). Defining the baseline for 2017 using U.S. export statistics implies a target of $159.0 billion for 2020 (in blue in panel a). This blog post looks only at U.S. export data. Article 6.2.6 of Chapter 6 of the Agreement states: “Official Chinese trade data and official U.S. trade data shall be used to determine whether this Chapter has been implemented. The results using Chinese import statistics are qualitatively similar, as shown by Bown (2021).
Details of the basic approach to mapping the 2020 and 2021 annual targets to monthly trading data are available in Bown (2021). .
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