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Wednesday, October 28, 2020
Trade as Cornerstone of U.S.-China Relations Needs to be Maintained
ANBOUND

There are two views in the United States concerning the progress of China's implementation of the first phase of the U.S.-China trade agreement. The first is from the official position of the U.S. government. The Office of the United States Trade Representative (USTR) and the United States Department of Agriculture (USDA) recently issued a report saying that according to the first phase of the trade agreement, China has purchased US$ 23 billion worth of American agricultural products and has completed 71% of the agricultural products purchased in the first phase of the agreement. This figure includes both agricultural products that have been shipped as well as agricultural products that have been sold but not yet exported.

With the continued deterioration of U.S.-China relations, it is rare for U.S. officials to "positively" announce the progress of the first phase of the trade agreement. Since the report was released less than two weeks before the U.S. election, some analysts believe that compared with the current U.S. export data, the report paints an optimistic picture of the U.S.-China trade agreement. Analysts said that U.S. President Donald Trump has provided billions of dollars in aid to American farmers who have been hurt by the trade war and the COVID-19 pandemic, so he hopes to obtain overwhelming support in the rural areas of the Midwest agricultural region to help him in getting re-elected. To put it bluntly, announcing that China is actively buying American agricultural products is an attempt to boost the number of Trump's votes in the election.

However, in another view, this figure has been questioned by some American professionals. Former U.S. Department of Agriculture chief economist Joseph Glauber considered the figure to be an overly optimistic measure because some sales may not be shipped until the December 31 deadline, and the agreement may still be cancelled. "The number 71% is wishful thinking," Glauber said. "I think the idea that all of that will occur in 2020 is highly unlikely, just based on previous years' shipping patterns."

Based on data released by the U.S. Department of Commerce, Chad Bown of the U.S. think tank Peterson Institute for International Economics has estimated that as of September 30, China has spent US$ 58.8 billion to purchase goods covered by the agreement. If the annual procurement target is to be achieved step by step, the purchase amount in Japan should reach US$ 108 billion as of September 30. This means there is a difference of nearly US$ 50 billion in American goods purchased by China so far. Scott Kennedy, a senior adviser at the Center for Strategic and International Studies (CSIS), said that regardless of the category, the procurement trend does not look good, and it will be difficult for China to fulfil its promises. Statistics show that in September, the United States actually exported US$ 12.7 billion of agricultural products to China, and the 2020 target is US$ 33.4 billion. In terms of manufactured goods, the United States exported US$ 40.2 billion, while the annual target was US$ 83.1 billion. The gap between energy exports to China and the target is particularly huge. As of September, the U.S. exports were US$ 5.9 billion, while the target for this year is US$ 26.1 billion.

The reason for the huge gap between China's purchase of American goods is due to certain practical difficulties. Firstly, the outbreak and the spread of the COVID-19 pandemic has led to a decline in domestic demand in China while simultaneously hindering U.S.-China trade and transportation. Secondly, energy prices plummeted earlier this year, and since the target of trade with China is in U.S. dollars rather than product volumes, China will need larger imports to achieve this target.

The difficulty in implementing the first phase of the U.S.-China trade agreement is an indication of current U.S.-China relations. The trade war has been ongoing for more than two years; this coupled with the intensification of U.S.-China geopolitical frictions and the United States' push for a complete decoupling from China has put to the test the huge and complementary trade relationship between the United States and China.

According to Chinese customs data, the United States has been China's second-largest trading partner, that is until 2019. In 2019, China's imports and exports to the United States were RMB 3.73 trillion, a year-on-year decrease of 10.7%. The United States has fallen to China's third-largest trading partner. ASEAN has now occupied the position as China's second-largest trading partner, with a trade volume of RMB 4.43 trillion, an increase of 14.1% year-on-year. China's trade volume with the EU, its largest trading partner, was RMB 4.86 trillion, an increase of 8%. In 2020, the decline in the importance of U.S.-China trade status continues. From January to September this year, the total value of U.S.-China trade increased by 2%, eventually reaching RMB 2.82 trillion, accounting for 12.2% of the total value of foreign trade. During the same period, China-ASEAN trade totalled RMB 3.38 trillion, an increase of 7.7%, accounting for 14% of China's total foreign trade value; China-EU trade totalled RMB 3.23 trillion, an increase of 2.9% year-on-year, accounting for about 14% of the total foreign trade value.

With the decline in the status of U.S.-China bilateral trade, there is a worrying long-term trend in the relations between the two countries, as trade, which is the cornerstone of bilateral relations, is being eroded. If this process continues, it will seriously weaken the substantial foundation of future U.S.-China relations.

For China and the United States, bilateral relations between these two major powers is a complex systemic relationship, which encompasses economic and trade relations, as well as diplomacy, politics, culture, science and technology, education, security, and military affairs, and a variety of multilateral issues such as global climate change. However, economic and trade relations would be the most important bilateral relations between the two, and these are the areas where the two powers have completely different ideologies, political systems, and valuescan reach the greatest intersection and form common interests. No matter how the geopolitical relationship between the two countries change, as long as the two countries do not move toward a state of war, economic and trade relationship may be difficult to be cut off systemically in a short period of time. Researchers from the ANBOUND have noticed that as the United States introduced various extreme sanctions against China this year while hitting Chinese companies, the "self-injury" effects of the sanctions are also emerging. Studies are estimating that the extreme pressure imposed by the United States on China in the semiconductor field may cause tens of billions of dollars in losses to the U.S. semiconductor industry and keep American companies away from China, the largest semiconductor consumer market.

Final analysis conclusion:

As U.S.-China relations deteriorate, both countries need to re-examine the costs of their mutual competition. As far as China is concerned, despite being suppressed by the United States, it still has to do its best to maintain and protect the cornerstone of U.S.-China trade. While the geopolitical turmoil remains, economic and trade activities will still be tenacious and lasting, therefore the bilateral trade should be considered by these two powers from the long-term perspective.

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