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Prof. ST Hsieh

Director, US-China Energy Industry Forum

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February 8, 2022

Trump’s trade war with the world should end now, but Biden Administration does not have a China strategy yet so the dreadful trade war between the US and China drags on. Trump’s trade war was ill conceived; it never achieved the intended goal of balancing US trade deficits. It never will! Further, the trade war with China has punished the US economy! While Biden Administration has ditched many Trump’s policies, there is no effort in sight for normalizing trade with China. As Biden faces a tough mid-term election within nine months and low approval ratings, along with the ongoing Ukraine crisis, his administration does not seem to have the need/energy to fully engage with China. As a result: There is still a US-China trade war under Joe Biden’s presidency but it is trying to enforce the Trump’s Phase One Trade Agreement, which expired on December 31, 2021.

We hope that Biden is right on:

“China is going to eat our lunch? Come on, man — They can’t even figure out how to deal with the fact that they have this great division between the China Sea and the mountains in the West. They can’t figure out how they’re going to deal with the corruption that exists within the system. They’re not bad folks, folks … They’re not competition for us.” May 1, 2019

But the following news reports send a very different message. Here are some key points that we should take note and hope the Administration will take appropriate actions soon.

  1. U.S. trade deficit hits $859 billion in 2021 and shatters record Updated: Feb. 8, 2022 at 4:56 p.m. ETFirst

Americans buy gobs of imports — and pay higher prices — as U.S. economy rebounds

  1. Under the Trump-Xi Phase One trade agreement, signed on January 15, 2020, China would sharply increase its purchases of U.S. goods as a precondition for Trump (or his successor) removing the new tariffs and getting back to normal. But China’s purchases added up to just $289 billion.
  2. Was the trade war worth it for U.S. exporters? The answer so far is no.” President Biden, for his part, has been cagey about his China trade policy. He has left most of the Trump tariffs on Chinese imports in place, while removing many other tariffs, such as those Trump imposed on European allies.
  3. WASHINGTON, Feb 8 (Reuters) – U.S. goods exports to China fell in December, cementing a $45 billion increase in the 2021 U.S.-China trade deficit.
  4. China imported a record $33 billion in U.S. agricultural products, U.S. Agriculture Secretary Tom Vilsack lauded the export gains as “a major boost for the economy as a whole, and particularly for our rural communities.”
  5. ‘Stalemate’ in US-China reach trade talk despite expiry of phase-one deal. As a result, many American companies that rely on China for manufacturing have given up hope of a government-led resolution to the trade conflict any time soon.
  6. China’s Ministry of Commerce continues to call on the US to abolish tariffs, and some analysts think Beijing will be able to leverage its central position in the global supply chain to exert pressure on Washington. Instead of beating a dead horse or the expired Phase One Trade Agreement, it would seem to be more productive for the US and China working on a new trade deal. Specifically, the post-COVID-19 pandemic economy recovery needs significant global coordination/collaboration.

Trump’s trade war was a total flop

Rick Newman Senior Columnist February 8, 2022.

Donald Trump, the American president from 2017 to 2021, said he knew more about trade than most economists and foreign-policy experts. “Trade wars are good, and easy to win,” Trump famously declared in 2018. He described himself as a “Tariff Man” and proved it by imposing new tariffs on hundreds of billions of dollars of U.S. imports, to be paid by the American firms buying those goods.

Trump’s dubious logic was that making imports costlier to Americans would hurt the foreign sellers and give him leverage he could use to demand concessions. His biggest target, of course, was China. Trump added new tariffs on about $450 billion worth of U.S. imports from China, while China, predictably, retaliated with similar penalties on U.S. imports. The escalation rattled financial markets in 2018 and 2019 and ultimately led to the “Phase One” trade deal between the two countries, signed on Jan. 15, 2020. Under that deal, China would sharply increase its purchases of U.S. goods as a precondition for Trump (or his successor) removing the new tariffs and getting back to normal.

New trade data for 2021 shows that China came nowhere near fulfilling its commitments in the 2020 phase one deal, with U.S. exporters ending up worse off than they would have been had Trump done nothing on trade. Analysis of trade data by Chad Bown of the Peterson Institute for International Economics found that during the first two years covered by the trade deal—2020 and 2021—China purchased just 57% of what it had committed to in the trade deal. China said it would buy at least $502 billion of U.S. goods during those two years. Yet total purchases added up to just $289 billion.

If there had been no Trump trade war, and no tariffs, U.S. exports to China would have been $119 billion more than actual levels from 2018-2021, if the U.S. share of Chinese imports had simply remained constant. That’s a net loss of business for American companies. And it doesn’t include nearly $30 billion in U.S. taxpayer funds Trump doled out to farmers to compensate them for lost sales to China from 2018 through 2020.

“Two years ago, President Donald Trump signed what he called a ‘historical trade deal’ with China,” Bown wrote on the the Peterson Institute’s website. “Today the only undisputed ‘historical’ aspect of that agreement is its failure. Was the trade war worth it for U.S. exporters? The answer so far is no.”

The COVID pandemic obviously interfered with trade between the United States and China, as it did with trade between most nations. But that doesn’t appear to be the main reason China’s purchases of U.S. exports are so far below what they agreed to. Total U.S. exports of goods and services are nearly back to pre-pandemic levels, and exports of goods alone hit record levels in 2021. That reflects COVID-related distortions in the economy as a whole, with a cutback in services such as travel boosting demand for goods. U.S. exporters are producing much more than before COVID—just not for the Chinese market.

A deal that focused on four areas

The 2020 Trump deal focused on four areas where China was supposed to bulk up on American purchases and ultimately boost U.S. employment in those fields: Manufacturing, agriculture, energy and services. The shortfall in services, including travel and education, clearly suffered from COVID. But that was less than 20% of the total purchase commitment.

Agriculture involved the smallest commitment by China, and those exports rose the most of any of the four groups. But that followed a swine fever crisis in China that gutted domestic pork production and led to a surge in imports from many places. While Chinese food purchases rose following the 2020 deal, they still fell far short of what China pledged to buy from American farmers.

U.S. automotive and aircrafts exports to China are actually lower than they were in 2017, which is the baseline year for calculating China’s increased purchase commitments. That’s partly due to the shortage of semiconductors for automobiles and to the fiasco with Boeing’s 737 Max airliner, which scotched sales for months. Yet critics ripped the 2020 deal at the time of its signing for prescriptive purchase targets allowing little to no flexibility for externalities—such as a pandemic or a blockage in one particular sector. Those critics turned out to be right.

The phase one deal had no enforcement mechanism, and Trump is obviously not president any more. So there may be no consequences of China missing the deal’s targets by a wide margin. President Biden, for his part, has been cagey about his China trade policy. He has left most of the Trump tariffs on Chinese imports in place, while removing many other tariffs, such as those Trump imposed on European allies. Biden places more importance on human rights and green energy than Trump did, and it’s possible he could link the removal of tariffs to Chinese action in those areas. The one thing that’s clear from Trump’s wayward trade experiment, however, is that is makes no sense to hurt yourself in order to hurt somebody else.

Rick Newman is a columnist and author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman.

U.S. December exports to China drop, cementing ‘Phase 1’ purchases shortfall

David Lawder Tue, February 8, 2022, 8:01 AM

WASHINGTON, Feb 8 (Reuters) – U.S. goods exports to China fell in December, cementing a $45 billion increase in the 2021 U.S.-China trade deficit and a major two-year shortfall in Beijing’s purchase commitments under the “Phase 1” trade deal negotiated by former President Donald Trump.

The U.S. Census Bureau said on Tuesday that the United States’ goods trade deficit with China rose 14.5% to $355.3 billion, the biggest since the 2018 record of $418.2 billion. The 2020 gap was $310.3 billion, a 10-year low.

U.S. imports from China in 2021 jumped by $71.6 billion over 2020, or 16.4%, to $506.4 billion, their highest since 2018. Exports to China increased by $26.6 billion, or 21.3%, to a record $151.1 billion.

The global U.S. trade deficit in 2021 surged 27% to a record $859.1 billion.

But the increase in 2021 U.S. exports to China was not enough to meet China’s targets for increased goods purchases under the “Phase 1” trade deal signed in January 2020 to halt escalation of a tariff war on Chinese goods launched by Trump in 2018.

In the deal, Beijing agreed to increase purchases of U.S. farm and manufactured goods, energy and services by $200 billion above 2017 levels over two years, among other market access commitments. The purchases commitments expired at the end of 2021.

Deputy U.S. Trade Representative Sarah Bianchi said last week that it was “really clear that the Chinese haven’t met their commitment in Phase 1” and the Biden administration was working with Chinese officials

U.S. officials also told Reuters early on Monday that they were losing patience over China’s failure to close the shortfall in its purchase commitments.

Through November, China had met only about 60% of its goods purchases goal, according to trade data compiled by Peterson Institute for International Economics senior fellow Chad Bown. The decline in U.S. exports to China in December shows that China did not make up any ground in the final month of 2021. (Reporting by David Lawder; Editing by Andrea Ricci)

U.S. Agricultural Exports Topple Record on China, Mexico Demand

Mike Dorning Tue, February 8, 2022, 11:32 AM

(Bloomberg) — Soaring demand from China and Mexico lifted U.S. farm exports 18% last year to a record-breaking $177 billion.

U.S. Agriculture Secretary Tom Vilsack lauded the export gains as “a major boost for the economy as a whole, and particularly for our rural communities.”

The U.S. expanded foreign sales in a broad range of agricultural commodities despite complaints of higher costs and delays in transoceanic shipping, export data released Tuesday by the Commerce Department showed. Corn exports rose 53% and beef shipments climbed 43% in the final three months of last year, compared with the year-earlier period.

China retained its ranking as the top export destination, with purchases of farm and food products climbing 25% from 2020. Mexico surpassed Canada as the second biggest export destination, with exports jumping 39% to a record $25.5 billion from the prior year.

China imported a record $33 billion in U.S. agricultural products last year, even though the Biden administration has criticized Beijing for falling short of purchase commitments in the Phase One trade agreement that ended Donald Trump’s tariff war with the Asian nation.

The Commerce Department data also showed U.S. farmers increasingly dependent on China and a handful of large customers. China accounted for 19% of U.S. farm exports last year, up from 16% in 2015. The top four foreign markets, which also include Mexico, Canada and Japan, accounted for 55% of exports, compared with 52% in 2015.

US-China trade war: American importers fret as progress stalls on lifting Trump-era tariffs

Mon, February 7, 2022

They might live thousands of kilometres apart, but American businessmen Dan Digre and Ben Zhang are united in their irritation with tariffs on Chinese imports.

Digre, the CEO of Minnesota-based speaker manufacturer Misco Speakers, has grown so sick of paying taxes on imports of Chinese audio components he has enlisted the help of a lawyer to argue for an exemption.

On the other side of the country in Seattle, Zhang, the founder of direct manufacturing company Greater Pacific Industries, has tried shifting production to Vietnam to evade the extra duties. He has also decided to sue the government.

The two men’s efforts underline the lengths American firms are going to in order to save their businesses from trade war tariffs that show no signs of being lifted.

President Joe Biden has said he is not prepared to drop the Trump-era tariffs because China has not lived up to its purchasing agreements under the phase-one trade deal.

The US government will release its 2021 trade data on Tuesday, which analysts expect will show China is still lagging behind in purchases of US farm and manufactured goods, energy and services.

Trade talks between the world’s two biggest economies have stalled, despite the recent expiry of the trade deal that was signed two years ago.

As a result, many American companies that rely on China for manufacturing have given up hope of a government-led resolution to the trade conflict any time soon.

“They do not want to be soft on China. Politically it’s not a good move,” said Digre, adding there is bipartisan support for the tariffs and he did not think they would be lifted this year.

Digre has been paying a 25 per cent tariff on most of the audio components he imports for about three years.

But with input costs rising, especially with inflation at its highest level in decades, he has hired a lawyer to request an exclusion for his business under the Harmonised Tariff Schedule (HTS).

China is the global capital of loudspeaker components because it has the lion’s share of magnets.

After the US imposed import tariffs, some companies began carrying out final assembly in the Philippines and Vietnam. But doing it in the US is not feasible due to high costs, Digre said.

Companies also know it is a struggle to find enough workers in the US to take low-end and intensive manufacturing jobs.

Zhang has also been hit with 25 per cent tariffs on many of the items he sources for companies like Microsoft and Google to give to their customers and staff. As his costs have increased, he has had to raise prices.

“The US importers pay the tariffs,” he said. “We write a cheque to the US Treasury.”

While working on a project with financial services company Capital One over Christmas, Zhang began looking for a way to skirt the tariffs by shifting manufacturing to Vietnam. But he has found the process far from ideal.

“It’s a nightmare,” he said. “Six months already but there still isn’t delivery because of disruptions to supply chains.

“It’s not as developed as China. If it’s made in China, it’s been done for a long time.”

The pandemic forced the factory producing his goods in Ho Chi Minh City to close for two months. When authorities allowed it to open, workers did not want to return and his agent would not return his calls.

Eventually, he had to send a staff member from the US to Vietnam to follow up.

Language barriers have also complicated the manufacturing process.

Part of Zhang’s business is to import products for speciality advertising events, which run on tight deadlines. Meeting the quick turnaround has become almost impossible.

“We have had to turn down a lot of projects because we can’t meet the event dates,” he said.

Zhang has filed a lawsuit against the US government to have certain products he imports excluded from tariffs, but it has not reached court. If he can prove the tariffs are unconstitutional, he hopes to be reimbursed for the extra expenses he has incurred.

A more practical approach could be waiting for a new president that was more willing to engage with China and address manufacturers’ concerns, he said.

The US Trade Representative (USTR) in October requested public feedback on the proposed reinstatement of tariff exclusions on 549 products, after they expired at the end of last year.

Some medical products and smartwatches were among the imports granted exclusions in 2020. But the tariff exclusion often only lasts one year.

According to the US-China Business Council, the main reason US lawmakers do not oppose tariffs is because of an anti-China mood prevailing in Washington, in which the benefits of confrontation outweigh costs to constituents.

The council said exemptions should be broadened if the Biden administration does not want to lift punitive tariffs on Chinese imports.

“Many businesses are frustrated with the [HTS exclusion] application process, as the majority is denied without explanation,” said Douglas Barry, a spokesman for the council. “As security issues are driving priorities in both countries, trade is no longer front and centre.”

Applications are more successful when a company can prove it is creating jobs in the US.

When tariffs were first imposed, some of the extra charges were shared with Chinese exporters. But as the trade dispute has continued, Chinese producers reduced or ended their subsidies. As a result, wholesale and retail prices in the US have increased, contributing to inflation.

Allen Shi, president at the Chinese Manufacturers’ Association of Hong Kong, said American importers were now paying the full cost of tariffs and many exporters in the mainland were no longer concerned about them.

Still, he said the protracted trade dispute was “a lose-lose situation”.

“We look forward to China and America working together,” Shi said. “As businessmen, we do not always want politics affecting business.”

China’s Ministry of Commerce continues to call on the US to abolish tariffs, and some analysts think Beijing will be able to leverage its central position in the global supply chain to exert pressure on Washington.

But not all Americans are as keen to see their government let up pressure on China.

A survey published by the Chicago Council on Global Affairs in December showed 58 per cent of respondents thought trade between the US and China weakened national security, up from 38 per cent two years ago.

Most Americans now view China as an economic threat, about 67 per cent, rather than an economic partner, at just 30 per cent. More broadly, US citizens see China as either a rival or an adversary, the survey found.

When asked about tariffs on products imported from China, the council found that 62 per cent of Americans supported increasing tariffs, up from 55 per cent in 2020.

And nearly as many – 57 per cent – say Washington should significantly reduce trade with China, even if it leads to higher costs for US consumers.

Digre said Trump’s misinformation that China would be paying for the tariffs, rather than US businesses and consumers, has contributed to ongoing support for them.

When Trump announced the tariffs, he insisted that China would be paying the costs. Numerous studies have shown that not to be the case. Though China’s share of US imports in certain sectors have slowed down.

Alexander Hitch, a research associate at The Chicago Council on Global Affairs, said tariff levels could change, but the Biden administration has so far not indicated that will be the case.

“While American public opinion views the US-China trade relationship more negatively than just a few years ago, the perspective of the Biden administration toward trade with China reflects a similar policy focus to that of the Trump administration.

“The administration recently announced the findings of a comprehensive review of the US-China trade relationship, signalling a renewed focus on China’s performance under the phase one trade deal, renewed consultation and coordination with allies and partners to confront non-market economic practices, and a review of Section 301 tariff levels, which could eventually lead to the removal of some tariffs.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century.

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