INSIGHT: China remains far from import goals of US trade deal

Author: Al Greenwood

2020/08/13

HOUSTON (ICIS)--China remains far from fulfilling the import commitments in the phase-one trade deal it signed early this year with the US, making less likely a broader agreement that could cover several commodity plastics and chemicals still under retaliatory tariffs.

The two sides are scheduled to meet on 15 August to assess compliance to the phase-one trade deal, according to an article from the The Wall Street Journal.

For now, Chinese importers have been able to receive waivers on the retaliatory tariffs imposed on polypropylene (PP), linear low density polyethylene (LLDPE) and other plastics and chemicals.

Progress on the trade deal would open up the possibility of a more ambitious trade agreement that could remove the retaliatory tariffs, giving US chemical and plastics producers and Chinese importers more assurance and certainty that their goods will not fall under high tariffs.

LACK OF PROGRESS
So far, trade data for the first six months of the year do not bode well. China is not close to meeting its import commitments for 2020.

Under the agreement, China agreed to increase imports of four classes of goods and services, using 2017 as a benchmark. The goals were based on the value of goods, not the volume, and progress would be measured based on the value of US exports shipped to China.

The following table shows the magnitude of those increases. Figures are in billions of dollars.

$bn 2019 Increase 2020 Increase Two-Year Total
Manufactured goods 32.9 44.8 77.7
Agriculture 12.5 19.5 32.0
Energy 18.5 33.9 52.4
Services 12.8 25.1 37.9
TOTAL 76.7 123.3 200.0

The trade deal specifies which products fall under each category by using harmonised tariff schedule (HTS) codes.

Some chemicals are included under manufactured goods, although no plastics were part of the category.

By using those HTS codes specified in the trade deal, the following table shows the base 2017 level and the goals for total exports for three of the categories. Services were excluded; figures are in billions of dollars.

$bn 2017 Exports Goal for 2019 Goal for 2020
Manufactured Goods 50.2 83.1 95.0
Agriculture 20.9 33.4 40.4
Energy* 7.7 20.5 41.6

Source: ITC and China Customs Data

* For energy, one product - other unlisted liquefied petroleum gases and gaseous hydrocarbons - corresponds to the eight-digit HTS code of 27111990. The US does not allow export figures to be searched by eight-digit codes. As a result, import figures were used from Chinese Customs Data.

China was already behind in the first quarter.

Recent trade data from the US International Trade Commission (ITC) show the country falling further behind, as shown in the following table.

$bn Jan-June Goal for 2019
Manufacturing 23.7 83.1
Agriculture 6.5 33.4
Energy 0.9 20.5

Source: ITC and China Customs Data

PANDEMIC EFFECTS
The coronavirus has made it all the more difficult for China to meet its obligations.

The pandemic lowered demand and prices for energy. Since progress on the phase-one trade deal is measured by dollars, China will have to import even larger volumes of energy products from the US to meet its obligations.

Demand in China fell during the first months of the trade deal because of the coronavirus, China's economy suffered the brunt of the pandemic during the first part of this year, lowering demand for the products covered by the trade deal.

China's economy has bounced back, but it is unclear whether the recovery will offset the slowdown from earlier this year.

For now, waivers on Chinese tariffs have encouraged exports from the US. These cover several commodity plastics and chemicals, including styrene, paraxylene (PX), monoethylene glycol (MEG), acrylonitrile (ACN), high-density polyethylene (HDPE), LLDPE and PP.

These shipments do not count towards China's commitments under the phase-one trade deal.

The following chart shows US exports of HDPE, PP and ethylene alpha olefin copolymers during the past several months. The chart illustrates the effect of the tariffs as well as their suspension due to the waivers.

Source: ITC

Source: ITC

Source: ITC

Insight by Al Greenwood

Click here to view the ICIS Coronavirus, oil price crash - impact on chemicals topic page.

Click here to view the ICIS US-China trade war topic page