Editor's note: John Gong is a professor at the University of International Business and Economics and a research fellow at the Academy of China Open Economy Studies under the University of International Business and Economics (UIBE). The article reflects the author's views, and not necessarily those of CGTN.
After a long distressing trade war, the first phase of Sino-U.S. trade deal was signed at the beginning of the year.
Now, the agreement is facing a midyear review.
According to the Chinese Ministry of Commerce, the two sides plan to hold delayed trade talks in the near future. The meeting will evaluate progress in the phase one trade deal they signed in January.
The review cannot meaningfully start without referencing the coronavirus pandemic that is still wreaking havoc globally, particularly in the U.S. Nevertheless, it is still important to evaluate the current status of implementation: Are the two sides still honoring the deal as the Sino-U.S. relations deteriorate?
First of all, even amid the pandemic and a torrent of anti-China actions emanating from Washington, such as sanctions against Hong Kong and Huawei, and the more recent attempt to ban TikTok, China is still buying, and buying big.
According to the agreement, China has committed to an additional 63.9 billion U.S. dollars of covered goods by the end of this year relative to the 2017 baselines. This implies an overall import target of 172.7 billion U.S. dollars in 2020.
Based on trade data tracked by the Peterson Institute for International Economics, China's biggest shortfall so far is in energy products. At the end of June, imports had reached 1.3 billion U.S. dollars compared to the 25.3 billion U.S. dollars targeted for the full year.
I am not concerned about shortfalls in the agricultural and the manufactured goods categories. As the economy in China rebounds, a few dozen billion dollars of demand are something the world's largest consumer market can easily digest. Just a few days ago, on July 30, China made its largest-ever purchase of U.S. corn, buying 1.94 million tonnes at an estimated cost of 300 million dollars on a single day.
But the energy category does appear to be a different story, for two reasons. One is related to energy products' unique storage capacity problem. China can't import more if demand has not recovered. The second relates to prices. Remember when this deal was signed in January, oil prices, for example, WTI, were hovering around 60 U.S. dollars a barrel. They crashed to 11 U.S. dollars at one point and have since recovered to around 40 U.S. dollars. That means China has to purchase 50 percent more volume as the price has dropped by 50 percent.
Year-on-year imports of U.S. liquid natural gas trebled in the first half of the year, but, due to the crash in prices of the commodity, the value of the imports only doubled. And there is also the problem of supply, as many shale oil companies in the U.S. have gone belly up.
Thankfully, the Sino-U.S. trade deal does have a clause that the two countries consult in the event of "a natural disaster or other unforeseeable event," which COVID-19 fits perfectly. Therefore, we would expect the two gentlemen to work out something to meet the original schedule.
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