The governments of the U.S. and China reached a nine-chapter, phase 1 trade deal that has included a small roll-back of tariffs, a set of economic policy changes, an enforcement mechanism as well as a $200 billion increase in Chinese imports compared to 2017 in 2020-21, as discussed in Panjiva’s research of December 16.
The commitments on purchases by China – which will be covered by an enforcement provision and potential snap-back of tariffs – have yet to be detailed but will include imports of “manufactured goods, food, agricultural and seafood products, energy products, and services” are less well defined.
For the food, agricultural and seafood products (HS 02-21) the total reached $17.97 billion in 2017 and $9.97 in the 12 months to October 31, Panjiva’s data shows. The main product line was soybeans at $12.36 billion in 2017 dropping to $5.56 billion in the past 12 months. China’s total imports of soybeans were worth $33.1 billion in the 12 months to Oct. 31, Panjiva’s analysis of official data shows.
Other major export lines included cereals worth $1.35 billion in 2017 and $203 million in the past 12 months, fish worth $1.27 billion in 2017 and $893 billion in the past 12 months and meat worth $422 million in 2017 and $803 million in the past 12 months.
It’s worth noting that total U.S. exports of all the products reached $119.1 billion – including $17.3 billion of soybeans – in the past 12 months. A redirection of a significant portion of exports to the rest of the world are possible, limiting the positive impact on American farmers.
SOYBEANS, CEREALS BORE THE BRUNT OF CHINA’S PURCHASE CUT FROM THE U.S.
Chart segments U.S. agricultural exports to China by tariff group (HS-2). Source: Panjiva
Exports of energy (HS 27) were worth $8.50 billion in 2017 and $3.96 billion in the past 12 months. There’s likely to be significant growth in total exports of energy by the U.S, worth $197.8 billion in the past 12 months, due to expanding LNG exports which reached $8.4 billion and crude oil worth $62.5 billion.
Total U.S. LNG exports reached an annual run rate of $11.8 billion in November and are set to double on the basis of existing capacity expansions. The latter are unlikely to come online to make a difference in the 2020-21 timeframe though.
China’s total imports were worth $325.9 billion including $241 billion of crude oil and $42.9 billion of LNG.
It’s worth noting that changes in commodity market prices may have a significant influence on the value of exports, potentially leading to complications in meeting a dollar-value target – a volume target may be needed instead.
CRUDE CUTS, DEFLATED GAS DRIVE LOSS OF ENERGY EXPORTS TO CHINA
Chart segments U.S. energy exports to China by tariff group (HS-4). Source: Panjiva
It isn’t clear what manufactured goods refers to. At a minimum it may include semiconductors and electronic circuits where U.S. exports to China were worth $5.91 billion in 2017 and $8.78 billion in the past 12 months out of a total $46.1 billion total. China’s total imports reached $313.6 billion, though the products are both highly supply chain specific and may include products the U.S. may be unwilling to sell to China.
CIRCUITS POWER UP
Chart compares U.S. exports of semiconductors and electronic integrated circuits to China. Source: Panjiva
Services may be an area of under-regarded activity. U.S. exports of services reached $56.1 billion in 2017, and have since been largely unchanged at $64.4 billion in the 12 months to September 30 according to Bureau of Economic Analysis figures.
The grouping includes tourism where a relaxation of travel rules could make a meaningful difference. Financial services and insurance segment might also be increased significantly.
For context total U.S. exports of travel and tourism reached $21.7 billion in the past 12 months while financial and insurance services reached $130.7 billion according to U.S. Census Bureau figures. A 15% increase in global exports of financial, insurance and travel services both by increasing Chinese market access / travel could therefore represent a further $16.5 billion.
CHINA SERVICES SURGE INTERRUPTED
Chart compares U.S. exports of services by destination. Calculations based on Bureau of Economic Analysis figures. Source: Panjiva
Can the $200 billion figure be achieved in a reasonable manner?
In terms of agriculture it’s theoretically possible to add $4.9 billion to U.S. soybean exports to China versus 2017 by sending 100% of the past 12 months U.S. soybean exports to China. Doubling non-soybean exports, which would represent 5.6% of total U.S. exports of non-soybean products – would add $5.62 billion.
In energy sending 100% of U.S. oil exports to China would account for an extra $57.0 billion of shipments, representing the lion’s share of the total. That would mean total U.S. oil exports would reach 23.7% of all Chinese imports – there’d be political ramifications for China’s relations with the rest of the world of course, plus the need to ensure accurate oil grade matching.
LNG exports are set to increase anyway as a result of new facilities coming online. Sending 100% of U.S. LNG exports based on that expansion at the October run-rate – when the Freeport LNG facility came online – would add $9.44 billion to exports.
As discussed already, U.S. exports of high technology products to China are already controversial. Just maintaining the existing exports from the past 12 months though would already add $2.88 billion to the 2017 level.
Finally, assumptions on services are difficult to make given the timing / private sector investment needs to boost services in financial services in particular. A 15% increase in U.S. total exports of financial services, insurance and travel would add a further $19.5 billion – i.e. a doubling of the growth rate in services from China seen in the past two years.
Taking the five categories together therefore yields $99.9 billion of annual increases compared to the $100 billion implied by a “import various U.S. goods and services over the next two years in a total amount that exceeds China’s annual level of imports for those goods and services in 2017 by no less than $200 billion“.
So, the increase in exports looks deliverable, but requires some heroic assumptions on the export of energy and of services market opening in China.
ENERGY, SERVICES NEED TO LEAD THE WAY IN BOOSTING EXPORTS
Chart compares U.S. exports to China by product. Target based on Panjiva assumptions regarding potential exports. Source: Panjiva