You’d think that if China liked the “Phase 1” trade deal that it signed with the Trump administration in early January, and the hope for tariff relief that it offered in the future, that China would have gone out of its way to demonstrate a good faith effort in its first month. It did just the opposite. To say that it didn’t meet its quotas for imports from the U.S. would be an understatement. I suspected that China never had any intention of complying with this agreement. They already got what they wanted – a reprieve from any further tariffs and a return to the status quo trade relationship with the U.S. – one in which it protects its massive trade surplus. So I promised to track China’s progress in complying (or not) with the agreement. The trade data for the month of January was released yesterday by the Commerce Department. So here we go.
First of all, a little background is in order. What did China agree to in this “Phase 1” deal? They agreed to meet four major milestones in terms of importing U.S. goods and services in the years 2020 and 2021, with the objective of reducing China’s trade surplus with the U.S. The goals use 2017 as a baseline. Here are they are: Phase 1 China Trade Deal Goals.
These goals weren’t broken down into monthly goals, but it was made clear to the Chinese that the U.S. would be tracking progress toward meeting these goals and would quickly call out China if they fail to demonstrate progress. It would be reasonable to expect that China would gradually ramp up its imports of U.S. products such that by the end of 2020 they would have met the goals for the year as a whole. Therefore, I’ve broken down the annual goals into monthly goals that ramp up in a linear fashion to meet the annual goals. For example, in order the meet the goal for their purchases of U.S. manufactured goods – $121.1 billion for 2020, starting from a baseline of $88.2 billion in 2017, which is $7.35 billion per month – China needed to import $7.772 billion in January, $8.194 billion in February, $8.616 billion in March, and so on, in order to reach $121.1 billion by the end of the year.
The results are in for January. China failed to meet the goal for each category of products, and not by a little. Here’s the results (in billions of dollars):
Category January Goal January Actual
Manf’d Goods $7.772 $5.597
Energy Products $0.995 $0.276
Agriculture Products $2.16 $0.944
Total Goods $10.921 $7.215
Monthly data for services exports to China isn’t available.
In each case, China’s imports of American products not only didn’t meet the goals, but declined from the 2017 baseline levels. One month’s worth of data isn’t enough to pass judgment yet on whether or not China is failing to live up to the “Phase 1” deal, since monthly figures vary up and down. Like I said at the beginning, however, you’d think that China would want to get off on the right foot. If I were Trump, I’d review the data through March (which isn’t released until May) and then warn China if their imports are lagging. Three months later, I’d scrap the “Phase 1” deal and reinstate all tariffs that had been planned prior to its signing. Hopefully, at that point, Trump will have learned a lesson about making any further trade deals with China. There is simply no way that China will voluntarily reduce its trade surplus with the U.S. Tariffs are the only way to make that happen.