You may have heard about soybeans lately. After a tumultuous year, the crop’s futures surged above $10.70 in October, in large part because of sales to China. The world’s second-largest economy bought more than 17 million tons of soybeans in the current marketing year, according to the Department of Agriculture, surpassing both 2019 and 2018 figures. This buying frenzy pushed prices to a two-year high.
Some of it can be attributed to phase one trade deal between the world’s two largest economies. In January, the United States agreed to lower tariffs on $120 billion worth of Chinese goods. In exchange, China agreed to beef up its imports by $200 billion above 2017 levels over a two year period.
The commitment included soybeans, but it extended to other products too. China committed to importing an additional $77 billion in 2020, made up of $12.5 billion in agricultural products, $32.9 billion in manufactured goods, $18.5 billion in energy products, and $12.8 billion in services. In 2021, that number will increase to $123 billion.
So how are actual exports stacking up? Will China hit those goals this year?
‘The answer is no,’ says Dr. Chad Brown, a Senior Fellow at the Peterson Institute for International Economics. ‘The agreement itself is written to have an overall target and four sector-specific targets – agriculture, manufacturing, energy, and services. There’s a chance we could get there for agriculture, but not for energy or manufacturing.’
According to the Peterson Institute’s US-China Phase One Tracker, China is behind on purchases in each of these categories. By the end of the third quarter, the country imported $65.9 billion worth of goods. In order to reach the 2020 target, China would have to purchase another $110 billion in the last three months of the year. Forces outside of trade policies are making that difficult or impossible.
Agriculture has the most robust sales so far. Corn and pork exports both exceeded targets for the year, and cotton is on track to meet its goal. But purchases of other products, like wheat and sorghum, are nowhere near their target numbers. Even soybean sales are below target, in spite of the rally this fall. It spells trouble for agriculture exports overall. ‘You’re not going to make up lost soybean sales with pork or lobster or any of that, we just don’t sell nearly enough of that other stuff,’ Brown explains.
Sadly, manufacturing is much further behind. While PPE and semiconductor sales were healthy, automotive and aerospace products (typically some of the largest exports to China by dollar amount) were nowhere close. ‘Before the trade war, China was the second-largest export market for American vehicles, after Canada. Now, tariffs imposed on imports from China made autos more expensive. If you are making a car in the United States, it suddenly costs a lot more to do so,’ says Brown.
By the end of September, auto products had only reached a quarter of their goal. Chinese aircraft imports were little more than 10% of the pledged amount for 2020.
Energy commitments are farthest off the mark. This year, China imported $5.9 billion worth of products from the United States. That’s more than in 2017, but not ‘$200 billion commitment’ more. At $4.4 billion, crude oil purchases are at about half of where they should be to reach their goal. Meanwhile, coal and refined energy are nowhere close. As Dr. Brown explains, the commitments were made in dollar amounts, and as we are all painfully aware, oil prices have been extremely unstable this year. ‘You could pull all the oil out of Texas that exists, but if the price is either zero or negative, you’re not going to make any progress towards these purchase commitments.’
These commitment levels would have been a stretch during a typical year. But of course, 2020 has been anything but typical. As it stands, no United States industry is likely to reach its goals this year, and in 2021, the gap will only widen.