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Beginning with our October 26, 2020 report, we have seasonally adjusted the monthly purchase commitment targets to reflect the relative weight of these products for that month in the 2017 trading data. It should be noted that the proportional increase in the annual targets for 2020 on a monthly basis is provided for information purposes only. Nothing in the text of the agreement suggests that China needs to achieve anything other than the annual targets. Everyone will remember 2020, for a variety of reasons. For those in the world, the phase one agreement between the United States and China will certainly be part of it. The agreement, signed on January 15, 2020 and entered into force on February 14, 2020, set high targets for U.S. agricultural exports to China. Now that all the data for the 2020 calendar year is available, it`s time to see what went well and what didn`t go well. On the 14th. In February 2020, the Economic and Trade Agreement between the United States of America and the People`s Republic of China: Phase One entered into force. China has agreed to increase the purchase of some U.S. goods and services by a total of $200 billion from 2017 levels from 2020 and 2021 levels.
This PIIE chart tracks China`s monthly purchases of U.S. products covered by the agreement, based on data from China Customs (Chinese imports) and the U.S. Census Bureau (U.S. exports). These purchases are then compared to the annual targets of the legal agreement, which are proportionate on a monthly basis on a seasonally adjusted basis beyond two basic scenarios (see methodology below). As stated in the legal agreement, one baseline scenario for 2017 allows the use of U.S. export statistics and the other allows the use of Chinese import statistics. According to USDA data, total exports of agricultural and related products covered by the agreement reached about $27.2 billion in 2020, an increase of $6.5 billion from 2017, an increase of 30 percent. This means, of course, that the $33.4 billion export target was missed by more than $6 billion. In short, we only met about half of the $12.5 billion target relative to the 2017 export level.
Although it did not meet the target, 2020 was a record for exports of agricultural products covered by the agreement in nominal dollars. The agreement prohibits forcing or pressuring foreign companies to transfer their technology as a condition of market access, administrative approvals or obtaining benefits. The agreement also requires that any transfer or licensing of technology be based on market conditions that are voluntary and reflect mutual agreement. The United States and China have reached a historic and enforceable agreement on a phase one trade agreement that requires structural reforms and other changes in China`s economic and trading system in the areas of intellectual property, technology transfer, agriculture, financial services, currency and currency. The Phase One agreement also includes China`s commitment to make significant additional purchases of U.S. goods and services in the coming years. It is important that the agreement introduces a robust dispute settlement system that ensures swift and effective implementation and enforcement. The United States has agreed to substantially amend its tariff measures under Article 301. One of the main objectives of the Phase One agreement was to reduce the U.S.
trade deficit in goods. As many analysts had anticipated, the imposition of tariffs on China and other countries, as well as purchase commitments under phase one, have had little lasting impact on the U.S. trade deficit. As the red line in the chart below shows, the U.S. trade deficit with the world has increased despite numerous tariffs imposed on China and other countries. Even with China itself, the impact on the trade balance has not been great. As the dotted blue line in the chart below shows, the reported deficit with China has narrowed somewhat. But this decline was exaggerated because data on U.S. imports was not sufficiently reported to avoid import tariffs (perhaps up to $55 billion). After adjusting for this under-coverage of imports, the decline in the trade deficit was quite small and had already exceeded the 2018 level in June this year. The following graph puts these numbers in a longer temporal perspective. The left-wing panel shows that U.S.
exports of industrial and energy goods to China have barely changed from historical levels: the recovery that began last year has essentially made up for lost ground during the trade conflict. On the other hand, agricultural products have recovered markedly above historical standards. At this point, however, it is too early to know if these gains will be sustainable. The box on the right of the graph compares the total exports of goods to China covered in the Phase One agreement with the same goods to the rest of the world, with the exception of China (which are not subject to targets). Goods destined for China experienced a significant decline during the trade conflict, which was not reflected in data from the rest of the world. Today, both data sets have recovered strongly, with China`s growth being faster thanks to strong agricultural exports, but the level of U.S. exports for both datasets remains below the trend lines before the trade conflict. For all non-covered products, which accounted for 29 percent of total Chinese merchandise imports from the U.S. and 27 percent of total U.S. merchandise exports to China in 2017, the Phase One agreement does not include a legal target. In October 2020, China`s imports of all uncovered products from the United States amounted to $28.4 billion, 25 percent less than at the same time in 2017.
U.S. exports of all uncovered goods to China stood at $22.0 billion in September, down 13 percent from the same period in 2017. (October data for products not covered will be available on December 7, 2020.) Although the agreement also sets targets for China`s purchases of certain services traded in the United States, this data is not reported monthly and is not covered here. The agreement also includes targets for 2021, which are not presented here. The United States and China signed a historic and enforceable agreement on a Phase One trade agreement on January 15, 2020. The agreement requires structural reforms and other changes to China`s economic and trade regime. Data Release Note: This update is based on October 2020 data released on November 25, 2020 for Chinese imports and U.S. exports – preliminary data on U.S.
exports to China, which will be monitored under the agreement, will now be updated before the 7th. December 2020 full publication planned. The next update is based on November 2020 data released on December 25, 2020 (Chinese imports) and December 23, 2020 (U.S. exports). Preliminary U.S. export data for October recorded no aircraft imports (Harmonized Tariff Schedules 8800 and 8802); All data revisions will be included in a revision published on December 7. China Customs reports that China`s aircraft imports (8802) in October were only $506 million. The agreement in the first phase covered a number of substantive issues in Chapters 1 to 5 that deserve more attention than the procurement targets in Chapter 6.
These included improving IP protection and technology transfer; the elimination of non-tariff barriers and other unfair trading practices in agriculture and financial services; and more flexibility and transparency in China`s exchange rate system, all with the aim of levelling the playing field between China and its trading partners. The concerns expressed in these chapters are particularly important given the important and arguably growing role of the Chinese government in owning and controlling the country`s economy and financial system (e.g. B, as noted in the recent 14th Five-Year Plan). In this context, the US economy could reap important long-term benefits from the strict implementation of the commitments made under the first five chapters of the agreement. So, if the economic impact of purchase commitments is unlikely to be significant, is phase one agreement irrelevant? We argue that it would be a mistake to simply reject the agreement. This PIIE chart, originally released on May 18, 2020, tracks monthly purchases of U.S. products from China that fall under the U.S.-China Phase One agreement. The first phase set out a plan for China to buy $12.5 billion worth of agricultural products higher than what was purchased in 2017, which was chosen as the basis because it was the last “normal” year of trade between China and the United States before the two countries began negotiating retaliatory tariffs. In 2017, the United States exported $20.8 billion worth of products covered by the agreement to China.
This would mean that China would have to import $33.4 billion worth of U.S. agricultural products in 2020 to fully comply with the terms of the agreement. This represents a 60% increase over 2017 exports. The agreement also stated that over the years 2020 and 2021, total U.S. agricultural exports to China would increase by $73 billion, equivalent to $80 billion in Chinese imports once shipping and freight were added. As of October 2020, China`s total year-to-date imports of covered products from the United States were $75.5 billion, compared to a prorated annual target of $137.3 billion. Over the same period, U.S. exports to China totaled $70.3 billion, compared to a target of $125.4 billion year-to-date. Thus, in the first ten months of 2020, China`s purchases of all registered products were only 56% (US exports) and 55% (Chinese imports) of their annual targets. .
