China’s trade surplus with the United States narrowed last year as the world’s two biggest economies exchanged punitive tariffs in a bruising trade war, data showed Tuesday, just as the two prepare to sign a deal dialling down tensions.
The huge difference in trade traffic is a key bone of contention for Donald Trump in a long-running stand-off that has seen him impose tariffs on goods worth hundreds of billions of dollars, triggering retaliation from Beijing and jolting the global economy.
China’s surplus came in at around $295.8 billion in 2019, down 8.5 percent from the previous year’s record $323.3 billion, according to customs data.
In December, its surplus with the US was around $23.2 billion, from $24.6 billion the month before.
The mini trade deal announced last month will see Beijing buy an extra $200 billion of US products over a two-year period, according to Washington officials. China has yet to publicly confirm the figures.
The Trump administration called off new tariffs on Chinese-made goods such as electronics that were to take effect last month. It also halved those imposed on September 1 on $120 billion worth of products.
But Washington maintains 25 percent tariffs on about $250 billion worth of Chinese imports.
In a further sign of de-escalation, Washington on Monday removed the currency manipulator label it imposed on China in the summer.
At a news conference on Tuesday, spokesman for the customs administration Zou Zhiwu said that since November and December, Chinese imports from the US including of soybeans and pork have picked up.
Zou added that the increased imports from the US will not affect China’s purchases from other countries.
He also said the trade tensions had “put some pressure on China’s foreign trade and firms that largely trade with the US”.
“Although our exports to the US have declined, the effectiveness of enterprises diversifying their markets has been significant,” he said, adding that exports to non-US markets have risen and overall exports are still rising.
The signing of the new trade deal, which is part of a planned wider pact, will have an “important and positive significance” not just for China and the US but also the rest of the world, Zou said.
China’s foreign trade volume fell slightly on-year in 2019, and its surplus with the world stood at $421.5 billion.
– China pork imports rise –
In December, China’s exports rose 7.6 percent on-year, the growth since July and above the 2.9 percent forecast in a Bloomberg News survey. Imports surged 16.3 percent, far exceeding estimates.
For the full year, exports rose 0.5 percent while imports fell 2.8 percent.
Meat imports spiked over the past 12 months as officials brought in 2.108 million ton of pork — a 75 percent increase from the year before, while beef imports rose 60 percent.
The huge jumps come as the country’s pork supply is hammered by an outbreak of African swine fever that has wiped out about 40 percent of the national pig herd.
Nick Marro at The Economist Intelligence Unit said China’s overall export recovery in December is likely due in part to a low base of comparison from the year before.
“It was around this time last year when we first started to see the impact of both the trade war and the global electronics slowdown bite into China’s trade data,” he added.
While shipments to Europe and Southeast Asia are up, Marro said these markets cannot fully replace the US.
“However, China’s efforts to pivot towards alternative sources of demand, as a cushion to lost US market access, may be starting to pay off,” he said, adding that growth in shipments to Vietnam outperformed every other major export market.
The U.S.-China trade war is set to enter a new, quieter phase on Wednesday as U.S. President Donald Trump and Chinese Vice Premier Liu He sign an initial trade deal that aims to vastly increase Chinese purchases of U.S. manufactured products, agricultural goods, energy and services.
The Phase 1 agreement caps 18 months of tariff conflict between the world’s two largest economies that has hit hundreds of billions of dollars in goods, roiling financial markets, uprooting supply chains and slowing global growth.
Trump and Liu are scheduled to sign the 86-page document, at a White House event before over 200 invited guests from business, government and diplomatic circles.
A translation of the text to Chinese was still being completed late on Tuesday afternoon, as Liu met with U.S. Trade Representative Robert Lighthizer.
Trump has already begun touting the trade deal as a centerpiece of his 2020 re-election campaign, calling it “a big beautiful monster” at a rally in Toledo, Ohio last week.
“Our farmers will take it in. I keep saying, ‘Go buy larger tractors, go buy larger tractors,'” Trump said.
The centerpiece of the deal is a pledge by China to purchase an additional $200 billion worth of U.S. goods over two years to cut a bilateral U.S. trade deficit that peaked at $420 billion in 2018.
A source briefed on the agreement told Reuters that China will purchase an additional $80 billion worth of U.S. manufactured goods over the two year period, including aircraft, autos and car parts, agricultural machinery and medical devices.
Beijing will boost energy purchases by some $50 billion and services by $35 billion, while agricultural purchases will get a $32 billion lift over the two years, all compared to a 2017 baseline of U.S. exports to China, the source said.
When combined with the $24 billion in 2017 farm exports, the $16 billion annual increase approaches Trump’s goal of $40 billion to $50 billion in annual agricultural sales to China.
Although the deal could be a big boost to farmers, planemaker Boeing <BA.N>, U.S. automakers and heavy equipment manufacturers, some analysts question China’s ability to divert imports from other trading partners to the United States.
“I find a radical shift in Chinese spending unlikely. I have low expectations for meeting stated goals,” said Jim Paulsen, chief investment strategist at Leuthold Group in Minneapolis. “But I do think the whole negotiation has moved the football forward for both the U.S. and China.”
TARIFFS TO STAY
The Phase 1 deal, reached in December, canceled planned U.S. tariffs on Chinese-made cell phones, toys and laptop computers and halved the tariff rate to 7.5% on about $120 billion worth of other Chinese goods, including flat panel televisions, Bluetooth headphones and footwear.
But it will leave in place 25% tariffs on a vast, $250 billion array of Chinese industrial goods and components used by U.S. manufacturers.
Evidence is mounting that these tariffs have raised input costs for U.S. manufacturers, eroding their competitiveness.
Diesel engine maker Cummins Inc <CMI.N> said on Tuesday that the deal will leave it paying $150 million in tariffs for engines and castings that it produces in China.
The company issued tepid statement of approval on Tuesday: “We believe this is a positive step and remain optimistic that all parties will remain at the table in order to create a pathway to eliminate all of the instituted tariffs.”
Lighthizer and Mnuchin moved to stamp out suggestions that the U.S. and China may review possible removal of more tariffs after the November U.S. election, issuing a joint statement that there were no written or oral agreements for future tariff reductions.
Mnuchin later told reporters that Trump could consider easing tariffs if the world’s two largest economies move quickly to seal a Phase 2 follow-up agreement.
CORE ISSUES UNTOUCHED
The deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property.
But it stops well short of addressing the core U.S. complaints about China’s trade and intellectual property practices that prompted the Trump administration to pressure Beijing for changes in early 2017.
The deal contains no provisions to rein in rampant subsidies for state-owned enterprises, which the administration blames for excess capacity in steel and aluminum and says threaten industries from aircraft to semiconductors.
It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.
Mnuchin and Lighthizer said these issues are key U.S. priorities for Phase 2 negotiations with China.
FINANCIAL SERVICES, CURRENCY, ENFORCEMENT
China has agreed in the Phase 1 deal to open its financial services sector more widely to U.S. firms, and to refrain from deliberately pushing down its currency to gain a trade advantage, the latter prompting Treasury to drop its currency manipulator label on Beijing.
While China has made such pledges in the past, a key difference that the Trump administration is touting is an enforcement mechanism to ensure compliance and resolve disputes.
But the enforcement relies on reimposition of tariffs if disputes cannot be resolved, returning the two countries to the current status quo.