China to ramp up US buys under trade deal, but skeptics question targets

[WASHINGTON] China has pledged to buy almost US$80 billion of additional manufactured goods from the United States over the next two years as part of a trade war truce, according to a source, though some US trade experts call it an unrealistic target.

Under the trade deal to be signed on Wednesday in Washington, China would also buy over US$50 billion more in energy supplies and boost purchases of US services by about US$35 billion over the same two-year period, the source told Reuters late on Monday.

The Phase 1 agreement also calls for Chinese purchases of US agricultural goods to increase by some US$32 billion over two years, or roughly US$16 billion a year, said the source, who was briefed on the deal.

When combined with the US$24 billion US agricultural export baseline in 2017, the total gets close to the US$40 billion annual goal touted earlier by US President Donald Trump.

The deal does not include an agreement for a future reduction in tariffs on Chinese goods, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin said in a statement on Tuesday afternoon, refuting a Bloomberg news report.

"The only non-public component of the agreement is a confidential annex with detailed purchase amounts," the statement said.

The deal terms are expected to be announced at Wednesday's 11.30am EST White House signing ceremony between Mr Trump and Chinese vice premier Liu He. It could defuse tensions between the world's two largest economies, just as the US Senate prepares to begin its impeachment trial of Mr Trump.

China's alleged commitments represent a staggering increase over 2017 imports of US goods and services of US$186 billion, raising questions about how realistic they are.

US stocks hit intra-day record highs on Tuesday before turning negative on the Bloomberg report, which said the United States would likely maintain the tariffs until after November's presidential election.

New data also show that the costs of Mr Trump's trade wars are proving more widespread, deeper and longer-lasting to American manufacturing competitiveness and jobs than previously believed.

BEYOND THE FARM

Mr Lighthizer on Monday called the deal a "huge step forward" for US-China trade relations and "a really, really good deal for the United States." He told Fox Business that Beijing's compliance would be monitored closely.

Mr Lighthizer and his counterparts from Japan and the European Union on Tuesday also took aim at Chinese subsidies that they say are distorting the worldwide economy, proposing new global trade rules to address such practices.

Beijing's subsidies to state-owned firms are expected to be addressed under a later Phase 2 US-China trade deal, but it remains unclear when those negotiations will begin.

Senate Democratic leader Chuck Schumer warned Mr Trump in a letter that a weak agreement that failed to address what he called China's "rapacious trade behaviours" and structural inequities would harm US workers and companies for years to come.

He told reporters China was the real winner in the trade deal, and there was "no real certainty" that Beijing would buy more US soybeans since it had signed long-term contracts to buy soybeans from Argentina and Brazil.

US officials said on Dec 13 that China had agreed to buy US$200 billion in additional US farm products, manufactured goods, energy and services over the next two years, compared to 2017.

Two other sources familiar with the Phase 1 trade deal confirmed the rough breakdown of energy and manufacturing purchases, without providing specific numbers.

The US$32 billion agriculture increase over 2017 was confirmed by Myron Brilliant, a senior US Chamber of Commerce official, who spoke to reporters on Monday in Beijing.

Analysts and traders doubt whether China could absorb such a big increase in commodity purchases, and expressed concern over price and supply risks associated with relying on the United States so heavily.

China's purchases of non-US soybeans and its suspension of a plan to implement a nationwide petrol blend with ethanol this year have also sparked questions about the targets.

Mr Trump has heralded farm purchases in a nod to a major Republican political constituency that has been battered by Chinese retaliatory tariffs during his 18-month trade war with Beijing.

MANUFACTURING CHALLENGES

The boost in manufactured goods includes significant purchases of autos, auto parts, aircraft, agricultural machinery, medical devices and semiconductors, said one of the sources, without naming any specific suppliers.

The aircraft would likely be built by Boeing, the No. 1 US exporter, whose new sales to China have ground to a halt over the past two years. That would be a welcome boost for the aerospace giant, whose best-selling 737 MAX aircraft remains grounded due to two fatal crashes.

One of the sources who expressed skepticism about the manufacturing target noted the US-China trade deal does not address non-tariff barriers that have kept these US goods out of the Chinese market for decades, such as procurement rules, product standards and subsidies to Chinese state-owned firms.

Chinese car sales have been flagging and excess domestic assembly capacity rising, making purchases of significantly more US-built cars unlikely. Among the most popular US-built vehicles sold in China are BMW and Mercedes-Benz sport-utility vehicles.

Many economists and experts are dubious about enforcement of the Phase 1 agreement.

The deal allows Washington to reinstate tariffs on Chinese goods if it cannot resolve a claim of Chinese non-compliance, but nothing would preclude China from retaliating, people familiar with the deal said.

Oil traders and analysts were also doubtful whether China would be able to purchase an extra US$50 billion of energy products, including crude oil, liquefied natural gas and imports of petrochemical raw materials such as ethane and liquefied petroleum gas.

REUTERS