U.S.-China Phase 1 Trade Agreement — Limited Progress on Increased U.S. Exports to China (through May)



Terence P. Stewart | Current Thoughts on Trade

While both China and the U.S. have taken steps to implement parts of the Phase 1 Agreement that took effect on February 14, 2020, the track record through May 2020 doesn’t show significant growth in U.S. exports to China overall (in fact the opposite) or in the 18 goods categories identified in Annex 6.1. Services exports are believed to be down significantly because of the large share of total U.S. services exports to China that have been in travel and tourism and the sharp contraction in 2020 due to efforts to deal with the COVID-19 pandemic.

Looking at total U.S. domestic exports to China for the period March-May 2020, U.S. exports were $22.9 billion ($7.638 billion/month) compared to $27.1 billion in 2017 ($.9.034 billion/month) and were $24.2 billion in 2019 ($8.071 billion/month). Total 2017 U.S. domestic exports of goods to China were $119.9 billion. The Phase 1 Agreement calls for increases on a subset of goods of $63.9 billion in the first year. Even if all other exports (other than the 18 subcategories specified in the annex) were simply equal to 2017, this would be an increase in the first year of 53.9%. By contrast, in the first three full months after the agreement, U.S. domestic exports are down 15.5%. However, there have been increases from the January-February 2020 period as shown below:

January 2020 $6,488,386,365

February 2020 $6,028,423,474

March 2020 $6,960,879,230

April 2020 $7,381,615,579

May 2020 $8,571,128,814

Thus, U.S. exports in May were close to the monthly average from 2017 for March – May and were 94% of May 2017 in May 2020.

Chinese data on total imports from all countries (in U.S. dollars) for January-May show a decline of 8.2% from the first five months of 2019. General Administrator of Customs of the People’s Republic of China, China’s Total Export & Import Values, May 2020 (in USD). Total U.S. domestic exports to China are down slightly less for the first five months vs. 2019, -6.8%.

The 18 product categories included in Annex 6.1 of the Phase 1 Agreement show the following for March-May 2017, March-May 2020 and rate of growth for the first year of the Agreement versus full year 2017 (figures in $ million):

Product category March-May 2017 March-May 2020 % change 2017-2020 March-May Growth for 1st year of Agreement
manufactured goods        
1. industrial machinery $2,807.5 $3,147.2 +12.1%  
2. electrical equipment and machinery $1,056.6 $1,259.3 +19.2%  
3. pharmaceutical products $734.1 $729.3 -0.7%  
4. aircraft (orders and deliveries)* NA NA NA  
5. vehicles $2,679.4 $788.7 -70.6%  
6. optical and medical instruments $787.8 $868.0 +10.2%  
7. iron and steel $329.5 $128.4 -61.1%  
8. other manufactured goods $2,614.7 $3,509.8 +34.2%  
Total for mfg goods $11,009.6 $10,430.7 -5.3% +77.5%**
9. oilseeds $898.2 $292.0 -69.5%  
10. meat $163.2 $918.6 +463.2%  
11. cereals $384.6 $421.0 +9.5%  
12. cotton $278.7 $311.5 +11.8%  
13. other agricultural commodities $1,239.2 $996.0 -19.6%  
14. seafood $291,0 $229.9 -21.0%  
Total for agriculture $3,254.9 $3,169.0 -2.6% +59.9%
15. liquefied natural gas $42.2 $259.8 +515.6%  
16. crude oil $944.9 $1,148.2 +26.9%  
17. refined products $520.9 $274.7 -47.3%  
18. coal $134.3 $25.5 -81.0%  
Total for energy $1,642.3 $1,708.2 +4.0% +144.3%
Total for 1-18 $15,906.8 $15,307.9 -3.8% +90.1%**
  • HS 8802 for aircraft shows no U.S. domestic exports to China for any month in the 2017-May 2020 period based on U.S. Census data as compiled by the U.S. International Trade Commission’s data web. U.S. export data don’t show orders just shipments.
  • The Phase 1 increase for manufactured goods and for all goods is overstated to the extent that the dollar value of increased purchases include aircraft, since U.S. domestic export data are not showing any shipments to China.

The U.S. Trade Representative, Ambassador Robert Lighthizer, in testimony to the House Ways and Means Committee and the Senate Finance Committee in June when asked about the U.S.-China Phase 1 Agreement and whether he expected China to fulfill its purchase commitments, focused on agricultural exports and indicated that for major export categories, like soybeans, there were large orders in the pipeline and shipments were heavily weighted to the end of the year. Thus, the early months of actual exports for at least some agricultural categories were not viewed as representative of the level of purchases from the U.S. by China that are ongoing. Soybeans were the most important U.S. export of agricultural products in 2017 with exports of more than $12 billion. Thus, how well U.S. agricultural interests do in the remainder of 2020 depend heavily on how large the purchases of soybeans that get shipped actually will be.

China has recovered more quickly from COVID-19 economic challenges than has the U.S. However, as reviewed above, their total imports from all countries (and from the United States) are down in the first five months of 2020. Thus, whether China will or can expand imports from the U.S. to the extent envisioned by the U.S.-China Phase 1 Agreement in the first year of its implementation is yet to be seen.

There is, of course, wide variability in U.S. export performance by product category and within product category by individual products. Some categories of U.S. exports have seen large rates of growth. Meat is one such category. Liquefied natural gas is another. With the huge consumption of pork in China and in light of the challenges China has faced with the health of its own pigs, there has been a very large increase in pork exports to China during 2020 for the U.S. On beef, where China had largely stopped importing most types of U.S. beef after an animal was diagnosed withbovine spongiform encephalopathy (BSE) in Washington many years ago, there are some exports from the U.S. starting to show up in the March-May time period.

But there are also large declines on categories of importance to the U.S., such as motor vehicles, though much of the decline is presumably due to the sharp contraction in purchases in China during the early months of 2020 and to the additional duties imposed by China.

For categories where there are increases in U.S. domestic exports over 2017, it may also be the case that there has been an acceleration of U.S. domestic exports to China since the Agreement went into effect. For example, the category of industrial machinery which has March-May US exports up 12.1% saw a much larger increase from the levels of exports in January-February 2020. Specifically, the US exports under the category had averaged $745.6 million each month in the first two months and then increased 40.7% in the next three months, averaging $1.049 billion each month. Thus, large increases are certainly possible in many categories and many individual products based on Chinese demand and past experience.

Some sectors where China purchases via state-owned or state-invested entities can see both sharp declines in purchases and, when China chooses to, sharp increases in purchases. Thus, on liquefied natural gas, US domestic exports to China were $0 for both January and February 2020 but then ramped up to $58.7 million in March and roughly $100 million in each of April and May. Similarly, crude oil exports from the U.S. were $0 in both January and February but jumped to just under $1 billion in May.

Considering importance of the Agreement, Administration could improve transparency through periodic update reports

It would be useful if the U.S. government provided monthly data reviewing progress under the Phase 1 Agreement which would permit an understanding of future purchases and of orders of aircraft so complete data are available. The Peterson Institute for International Economics has a U.S.-China Phase One Tracker which looks at data on a more aggregate data level and looks at the full year 2020, even though the Agreement did not kick in until February 14, 2020. See https://www.piie.com/research/piie-charts/us-china-phase-one-tracker-chinas-purchases-us-goods. Thus, a monthly report that provides the Administration’s understanding of shipments and purchases would fill existing gaps in data and improve the public’s understanding of whether the Agreement is fulfilling the purchase commitments. It would also be helpful if the Administration provided an overview of all provisions contained in the Agreement and if changes have been made to laws, regulations or otherwise, and, if made, whether the market barriers of concern to U.S. companies are in fact now removed.


The U.S.-China Phase 1 Agreement is a potentially important agreement which attempts to address a range of U.S. concerns with the bilateral relationship and obtain somewhat better reciprocity with the world’s largest exporter. The Phase 1 Agreement has left other challenges to a Phase 2 negotiation which has not yet begun. With the complexities in the bilateral relationship flowing from a wide range of trade and non-trade events, it is hard to know whether China will fully implement the bilateral agreement or be willing to move forward on a Phase 2 negotiation. Similarly, it is hard to know if the U.S. will view the agreement as being implemented by China sufficiently to move to the next stage. A more sustainable trade relationship should be in both countries’ interest. But trade is, of course, just one important topic in a series of topics where the U.S. and China have very different views which can complicate forward movement on trade.

For the public, the Administration could improve an understanding of how the Agreement is being implemented by providing periodic updates of how all elements in the agreement are being implemented, how U.S. companies are viewing the changes on the ground in China, and how the Administration sees the U.S. export data that comports with the Annex 6.1 objectives.

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