US trade deficit with China has dropped since Donald Trump launched trade war

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© AP Automated vehicles move shipping containers in a container port in Qingdao in eastern China’s Shandong province on January 12. Photo: Chinatopix via AP

The US trade deficit with China has dropped sharply since former president Donald Trump launched a tariff war against Beijing in 2018, even as the gap rose overall, as the country sped up purchases of American soybeans and other agricultural goods.

The trade in goods deficit with China fell to US$310.8 billion in 2020, down from US$419.5 billion in 2018, when the tit-for-tat trade action started, according to US data released on Friday, reflecting action on pledges that Beijing made in a phase one trade deal that Trump signed with Chinese Vice-Premier Liu He in Washington a little more than a year ago.

The 26 per cent drop in the bilateral trade gap over two years compares with a more modest 10 per cent decline since 2016, when Trump was campaigning for the White House with a pledge to reverse US deficits with China and the rest of the country’s major trading partners with aggressive policies.

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America’s overall trade deficit in goods rose 3.8 per cent since 2018 to US$904.9 billion, and by nearly a quarter since Trump took office as the European Union, Canada and other trading partners fought back against the US leader with countermeasures, including punitive tariffs on US aluminium, steel and other commodities.

The coronavirus pandemic accounted for some of the increase in the overall deficit over the past year. For example, US civilian aircraft exports dropped by nearly two thirds, to US$16 billion in 2020 from US$44 billion in 2019.

China’s agricultural purchases made “foods, feeds and beverages” the only category in Friday’s US Census Bureau report to show an improvement in overall trade in 2020 on an annual basis, with exports rising 6.6 per cent to US$140 billion. All other categories in the report fell against 2019 by as much as 16 per cent.

China’s agricultural purchases surged in the past year, with soybean exports in the crop’s current marketing year, which is September 1 through August 31, jumping to 32 million tonnes from 11.4 million tonnes in the year-earlier period, according to US Department of Agriculture data.

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But even as Trump’s trade action against Beijing shows benefits for the US in terms of the latest bilateral trade numbers, the increased buying is still falling short of its pledges in the deal, under which Washington agreed to cut some tariffs in exchange for China committing to buy at least US$200 billion more of US goods and services over two years compared to 2017 levels.

Determining that baseline on Chinese customs data implies a 2020 purchase target of US$173.1 billion, according to an analysis by the Peterson Institute for International Economics, a Washington-based think tank. That compares with US$124.6 billion in exports to China registered in the US data announced on Friday.

As President Joe Biden picks up where the Trump administration left off, analysts are looking closely at whether the new US leader will keep in place the tariffs that gave Trump a win in an otherwise failed attempt to erase America’s overall trade deficit.

“I expect the Biden team to keep the phase one trade deal in place since there isn’t time to replace it with a broader framework in the near term,” said Michael Hirson, China and northeast Asia practice head at political risk consultancy Eurasia Group.

“However, they will shift focus from the purchase commitments to structural issues, and in particular to areas like subsidies and technology policies that the Trump team had punted to a phase two. The difficulties in making progress on these issues, and the political pressure on Biden to stay tough on China, means that major tariff reduction in 2021 is unlikely,” Hirson said.

“The push on structural trade issues will involve (the US Trade Representative) looking to also press these issues through a coordinated approach with allies and like-minded countries,” he added. “Beijing of course sees this coming, which explains its efforts to head off this approach with proactive trade policy, including finalising the (Regional Comprehensive Economic Partnership) agreement and more recently the EU-China investment agreement.”

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But the way forward will not be clear until the US Senate confirms Katherine Tai as Biden’s US trade representative, a move that would bring an experienced, Mandarin-speaking trade official to the US side of the negotiating table.

As America’s chief enforcement lawyer on China trade issues while Biden was US vice-president in the administration of former president Barack Obama, Tai was charged with corralling partners to join Washington in a trade dispute against China on restrictions involving exports of rare earth elements – a market dominated by China.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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