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Thread: A $50 Billion Hole Emerges In Trump's China Trade Deal

  1. #1

    A $50 Billion Hole Emerges In Trump's China Trade Deal

    Now that the dust has settled on the US-China trade deal and analysts have had some time to pore over its 90+ pages, various chapters and (non-binding) terms that comprise the body of the agreement, one high-level observation noted by Rabobank, is that the agreement foresees the total amount of goods exports from the US to China to reach above $ 290BN by end-2021. The implication of this is that the chart for US exports to China should basically look like this for the next two years:



    As Rabobank's senior economist Bjorn Giesbergen writes, there are probably very few economists that would deem such a trajectory feasible (except for the perpetually cheerful economics team at Goldman, of course), seeing that it took the US more than 15 years to raise exports from around USD16bn in 2000 to USD 130bn in 2017. Moreover, the Chinese purchases of goods are beneficial to US companies, but at the cost of other countries, and the agreement is only for two years. If China will buy more aircraft from the US, that could be to the detriment of the EU.

    According to the document “the parties project that the trajectory of increases … will continue in calendar years 2020 through 2025.” But "to project" does not sound as firm as "shall ensure." So, as the Rabo economist asks, "are we going to see a repetition of the 2019 turmoil caused by the phase 1 trade negotiations after those two years? Or is this supposed to be solved in the phase 2 deal that is very unlikely to be made? What’s more, while the remaining tariffs provide leverage for US trade negotiators, they are still a tax on US importers and US consumers of Chinese goods."

    But before we even get there, going back to the chart shown above, Bloomberg today points out something we have pointed out in the past, namely that China’s $200 billion, two-year spending spree negotiated with the Trump administration appears increasingly difficult to deliver, and now a $50 billion "hole" appears to have opened up: that is the amount of U.S. exports annually left out and many American businesses still uncertain about just what the expectations are.

    Some background: while Trump officials stressed the reforms aimed at curbing intellectual-property theft and currency manipulation that China has agreed to in the “phase one” trade deal signed Wednesday, the Chinese pledge to buy more American exports has become an emblem of the deal to critics and supporters alike.

    The administration has said those new exports in manufactured goods, energy, farm shipments and services will come over two years on top of the $130 billion in goods and $57.6 billion in services that the U.S. sent to China in 2017 -- the year before the trade war started and exports were hit by Beijing’s retaliatory measures to President Donald Trump’s tariffs.

    And while Goldman said it is certainly feasible that China can ramp up its purchases of US goods, going so far as providing a matrix "scenario" of what such purchases could look like...



    ... that now appears virtually impossible, because as Bloomberg notes, the list of goods categories in the agreement covers a narrower group of exports to China that added up to $78.8 billion in 2017, or $51.6 billion less than the overall goods exports to the Asian nation that year. The goods trade commitment makes up $162.1 billion of the $200 billion total, with $37.9 billion to come from a boost in services trade such as travel and insurance.

    Here, the math gets even more ridiculous:

    The target for the first year that the deal takes effect is to add $63.9 billion in manufactured goods, agriculture and energy exports. According to Bloomberg economist Maeva Cousin’s analysis, that would be an increase of 81% over the 2017 baseline. In year two, the agreement calls for $98.2 billion surge in Chinese imports, which would require a 125% increase over 2017.

    Importantly for China, the deal requires those purchases to be “made at market prices based on commercial considerations,” a caveat which spooked commodities traders, and led to a sharp drop in ags in the day following the deal's announcement.

    Can China pull this off? Yes, if Beijing tears up existing trade deals and supply chains and imposes explicit procurement targets and demands on China's local business. As Bloomberg notes, "critics argue that such pre-ordained demand amounts to a slide into the sort of government-managed trade that U.S. presidents abandoned decades ago" and the very sort of act of central planning that U.S. officials have, paradoxically, spent years trying to convince China to walk away from.

    continued..https://www.zerohedge.com/economics/...ina-trade-deal
    "The Patriarch"



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  3. #2
    Trump will take what he can get and then hit them with more tariffs if they fail to meet their obligations.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankind…it’s people I can’t stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  4. #3
    Chart is looking good . Sweet . We never got positive charts under the reign of Pelosi reid and Obama.
    Do something Danke

  5. #4
    Quote Originally Posted by Swordsmyth View Post
    You only show up to attack Trump when he is wrong
    Make America the Land of the Free & the Home of the Brave again

  6. #5
    Importantly for China, the deal requires those purchases to be “made at market prices based on commercial considerations,” a caveat which spooked commodities traders, and led to a sharp drop in ags in the day following the deal's announcement.
    Meaning that unless their companies and consumers demand the stuff, the government isn't going to spend $200 billion over two years just to make Trump happy. They MIGHT purchase up to that much worth of stuff from us.

    The "deal" is a sham to allow Trump to declare victory in the Trade War without actually doing anything.

  7. #6
    Quote Originally Posted by Zippyjuan View Post
    Meaning that unless their companies and consumers demand the stuff, the government isn't going to spend $200 billion over two years just to make Trump happy. They MIGHT purchase up to that much worth of stuff from us.

    The "deal" is a sham to allow Trump to declare victory in the Trade War without actually doing anything.
    You sound a little bitter there, Zip.

  8. #7
    Quote Originally Posted by Zippyjuan View Post
    Meaning that unless their companies and consumers demand the stuff, the government isn't going to spend $200 billion over two years just to make Trump happy. They MIGHT purchase up to that much worth of stuff from us.

    The "deal" is a sham to allow Trump to declare victory in the Trade War without actually doing anything.
    There is a lot of demand for the stuff in those industries. China was just not allowing the purchases. As long as its competitively priced China will buy American, tbeir more affluent citizens prefer imports on some stuff. Our stuff is usually higher quality than our competitors for some products. China for years has restricted quantities of American imports as a way of combating the dollar and devaluing their currency. With this deal in place they are essentially promising not to do that. If they restrict imports following this deal they will look like bad actors to the International community so if they do restrict imports they will try to do it in a sneaky way.

  9. #8
    Quote Originally Posted by angelatc View Post
    You sound a little bitter there, Zip.
    He became, dare I say ..... emotional?



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