WASHINGTON – The economic fallout from the coronavirus pandemic has cast doubt on whether China can meet its goals of buying American goods under this year’s trade deal, with energy emerging as the biggest victim.
China has come a long way towards its agricultural and manufacturing targets, but lags far behind, perhaps hopelessly far behind, an ambitious target for the purchase of oil, natural gas, refined petroleum products such as propane and butane and coal, which sparked concerns from the US energy industry that is encouraging the United States Trade Representative to increase pressure on China to reach the goal.
The goals of the deal implied that China would buy around $ 25 billion of US energy in 2020 and even more in 2021. The latest data on US exports for the month of May, released on Thursday, shows that China has bought just $ 2,000 million this year. of that sum, near the midpoint of the year.
The collapse of energy demand and energy prices amid the coronavirus pandemic partly explains why China is so far behind. However, China’s energy purchases in the United States are in contrast to the progress it has made toward targets for the purchase of agricultural and manufactured goods.
“It’s quirky and troubling,” said Anne Bradbury, executive director of the American Exploration and Production Council, which represents oil and natural gas exploration and production companies. “The energy sector has been incredibly affected by the pandemic and now, more than ever, this agreement is important to the industry.”
As of May, China had purchased $ 5.4 billion in agricultural products, with a goal for the year of $ 33 billion in purchases. That leaves China behind, but it could still meet its goals, according to calculations by Chad Bown, lead researcher and trade data expert at the Peterson Institute for International Economics.
Agricultural purchases are 39% of the pace necessary to reach the goal of phase one. But farm purchases are highly seasonal in the fall when major crops like soy are harvested, giving China time to catch up if the deal remains intact.
And China has bought $ 19.5 billion in manufacturing goods, where the goal for the year is $ 84 billion. According to Mr. Bown’s calculations, that puts manufactured products at 56% of the pace necessary to reach the goal.
But the energy is far behind: running at just 18% of the pace necessary to reach the goal. Catching up in the next 7 months would require bulk purchases to get started right away.
To reach the goal, China would need to start buying more than $ 3 billion a month of energy, more each month than it has been able to buy in the past five months combined.
An increase in domestic energy production in the past decade has made the US energy industry an exporter after decades of foreign dependency, and China, with its population of 1.4 billion people and the second-largest economy. largest in the world, represents the largest potential market. for exports such as US crude oil and liquefied natural gas.
“We believe that China and the US are destined to have a very strong long-term LNG relationship and we need to keep pushing things again,” said Fred Hutchison, president of LNG Allies, the American liquefied natural gas association.
Targets for energy exports have always been aggressive, especially for LNG, which is a relatively new export from the United States, said Mr. Hutchison. And the pandemic made the goals even more difficult, he said.
Because the two nations agreed on a dollar target, the goals become much more difficult when energy prices fall.
“Purchase commitments are made in terms of dollars (value), not in terms of volume, so even if China makes massive volume purchases, if prices are close to zero, they will not achieve value targets in dollars, “Bown of the Peterson Institute said in an email.
However, this explanation has not stopped Congress and industry groups from requiring the USTR to amplify pressure on China to increase energy purchases.
In June, members of Congress led by Rep. Jodey Arrington, a Republican congressman from the West Texas Oil Field Region and House Republican Steve Scalise of Louisiana, sent a letter to Robert Lighthizer, the chief negotiator Trump and USTR chief’s trade policy, urging him to do more for China to buy US crude oil.
“The trade data reported in the early months of 2020 reveals that China has purchased a very small amount of crude oil from the United States in 2020, while increasing its imports from Saudi Arabia and Russia,” the lawmakers wrote.
“We urge you to continue to put pressure on China and hold it accountable for all of its commitments,” they said. “Specifically, the USTR should urge China to buy US crude oil rather than buy more crude from countries known to distort the world oil market.”
But pulling out of the deal or sanctioning China is not an easy step for the United States to take without jeopardizing the progress China has made in buying agricultural or manufactured goods. During the nearly two-year trade war, when Washington raised tariffs on China, Beijing repeatedly responded by shutting down its purchases of American agricultural products, a dynamic that hit the United States’ agricultural belt.
Mr. Lighthizer has defended the purchase agreements, saying that the trade data only reflects completed exports and does not reflect the purchase agreements that have been made but have not yet been fulfilled.
Another complication for the United States is that, although China is behind on the purchase objectives of the phase one agreement, it is also one of the few reserves of economic strength worldwide for US exports.
The pandemic and blockades to prevent the spread of the virus have paralyzed trade worldwide. But as the first to reopen its economy after the pandemic, China has been a strong trading partner. In April and May, China regained its mantle as the largest trading partner of the US For most of the past two years, during the trade war, it fell to third place behind Canada and Mexico.
“I think the expectation is that China’s energy demand will be strong as it continues to grow, and we have the ability to sell in that market,” said Stephen Comstock, vice president of the American Petroleum Institute.
Write Josh Zumbrun to [email protected]
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