… “Prices of agri (commodities) from the rest of the world could be cheaper, especially after China cut import tariffs (in January). So even after retaliatory tariffs are removed, the U.S. will not have a competitive advantage over other economies”…
Phase 1 commodity targets likely more than China can chew: analysts
Hallie Gu, Tom Westbrook, Reuters
Jan 14, 2020
BEIJING/SINGAPORE (Reuters) - Commodity traders and analysts are struggling to map out how China will reach the eye-popping amounts it is committing to buy from the United States under Phase 1 of their trade deal.
China has pledged to buy $50 billion more in U.S. energy supplies, and will raise U.S. agriculture purchases by some $32 billion over two years above 2017’s $24 billion baseline, according to a source briefed on the deal to be signed on Wednesday. The deal also stipulates purchases of an additional $80 billion in manufactured goods.
Those totals would certainly trim the roughly $300 billion annual trade gap between the countries. However, analysts who study Chinese commodity flows remain skeptical that Beijing can absorb such quantities of U.S. goods without threatening trade ties with other suppliers, hurting its own domestic producers, and making substantial changes to import standards and quotas.
“Either China massively increases imports and reduces current account surplus from the current 1.5% of GDP, or it engages in trade diversion away from current providers of goods which compete with the U.S.” said Alicia Garcia Herrero, Chief Economist Asia Pacific at Natixis in Hong Kong. “I see this second scenario as much more likely.”
AGRICULTURE TARGET “SHOCKING”
The pledge to boost U.S. farm imports by over $30 billion over two years is “shocking” since that increment is more than the value of farm products it has purchased from the U.S. in a single year, said a China-based grains trader.
“It would make (more) sense if the $32 billion is the total number, not the increased number.”
Such a large fixed dollar-figure from one producer would also risk supply disruptions and distort international crop prices, said Iris Pang, Greater China economist at ING in Hong Kong.
“Prices of agri (commodities) from the rest of the world could be cheaper, especially after China cut import tariffs (in January). So even after retaliatory tariffs are removed, the U.S. will not have a competitive advantage over other economies,” she said.
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