US Touts Ag Exports to China, but Numbers May Be Misleading, Expert Says

China has met 71% of its 2020 purchase goals for U.S. agricultural commodities under the phase one trade deal, the Office of the U.S. Trade Representative and the U.S. Department of Agriculture said in an “interim report.” The Oct. 23 report, released 11 days before the election, said the U.S. is on track for its “best year ever in sales to China.”

“It is still to be seen whether they meet their target,” the report said, “but particularly given the COVID-19 effects on the global economy, they are making substantial progress.”

But the report may be misleading, said Chad Bown, an economist with the Peterson Institute for International Economics economist. Bown, speaking during an Oct. 26 call with reporters, said he tracks the sales differently and added that China is “still pretty far behind” its agricultural targets. The administration calculated the numbers using agricultural contracts signed for future deliveries, which “may or may not be fulfilled,” Bown said, adding that his analysis relies on current trade statistics. “They've sort of done some projections for what they think trade might look like between the United States and China throughout the rest of this year, maybe into next year.”

The interim report said that the U.S. is using “the best methodology” to track China's progress, which combines actual export numbers with the contracts that are represented in weekly export sales reports, and estimating sales of products that aren't covered in the weekly reports. But Bown said U.S. agricultural exports to China -- though September -- are on pace with 2017 levels. “That's still well short of the pace needed to fulfill purchase commitment targets,” he said.

Even though China's purchases are not on track, several agricultural products are selling well. The report said sorghum exports through August were up more than $50 million compared to the same period before the trade war, and beef exports are triple the levels of 2017. It also said corn and pork sales are at an all-time high, which Bown has also noticed. He said both exports are doing “very, very well,” but not necessarily because of the phase one deal. An outbreak of African swine fever has caused China to seek out large volumes of pork imports from around the world, he said. “So this isn't so much about fulfilling the phase one agreement,” Bown said. “It's just that they've had massive domestic supply problems with pork, and we’re part of the solution.”

Other agricultural exports are struggling, Bown said, such as lobster and soybeans. China is still buying “a lot more lobster” from Canada and may not be buying many soybeans because they were primarily used as feed for its domestic supply of pork, which has been hit hard by the swine fever. “That may be partially explaining why the soybean numbers, at least to date so far, are down,” he said.

The report also touted changes that aren't purchase promises, but lifting of restrictions. China recently lifted import restrictions on U.S. poultry (see 1911140019), for example, resulting in $436 million worth of poultry meat sales to China through August, the report said.

USDA Secretary Sonny Perdue said the phase one deal “is proof President [Donald] Trump’s negotiating strategy is working.” Although China took “a long time to realize President Trump was serious, this deal is a huge success for the entire economy” and “finally levels the playing field for U.S. agriculture,” Perdue said. “Being able to participate in this market in a more fair and equitable way has generated more sales that are supporting higher prices and strengthening the rural economy.”

If China does not meet is commitments by the end of the year, those purchase requirements could bleed into next year, Bown said, when China's commitment targets are even higher. “So it may make it even tougher to catch up,” he said. And if the Trump administration is replaced with a Joe Biden administration, Bown said it is unclear what will happen to the phase one deal. “I don't think either side, either the Chinese side or the Biden side ... wants to get back into trade war mode with each other,” he said. “So I would anticipate they would probably start talking.”

Bown also said U.S. semiconductor exporters may have been “one of the biggest beneficiaries of export growth” to China this year, but not because of the phase one deal. Chinese companies, such as Huawei, have tried to import large quantities of semiconductor equipment as the U.S. has increased export restrictions on semiconductors (see 2008170029 and 2009100012). “They're worried about looming U.S. export controls that are threatening to cut off exports to China,” he said.