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- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
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- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
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- The Latest on Vaccinations and What it Means for Growth
- Highlights of the Fed's "Economic Well-Being of U.S. Households in 2020" Report
- Relative Factors and Forward Change in Federal Funds Rate
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- Inflation Weights on Bonds and Consumer Sentiment
- FOMC Tapers While Trade and Employment Flash Mixed Signals
- Inflation is Getting Broader, Not Cooler
- Unemployment Insurance During the Pandemic
- A Year of Normalization
- What Will GDP Growth Look Like in 2022?
What Happened to That US-China Trade Dispute?
January 10, 2021
China-US trade tension once was one of the primary economic topics during President Trump’s presidency as his fleeting diplomacy with them tossed financial markets into disarray. In 2020, as far as the media was concerned, trade tensions took a backseat to the impending COVID-19 crisis which spawned in late February and early March. Instead, after the January 2020 Phase One Trade deal was in place, conversations trailed off as the focus moved to public health. While everyone was distracted, the US-China Economic Security Review Commission continued to monitor progress in the de-escalation of trade tensions which seems to have occurred.
As of October 2020, US exports to China were up 66% year-over-year at $14.7 billion. The surge in exports set a new monthly record for US exports which had historically never been higher than $12.6 billion (record set in October 2016). The large growth led to a -14.1% drop in the trade deficit with China at a time when the US’s overall trade deficit is on the rise, up 8.0% year-over-year in November 2020. Imports from China also rose as US companies entered a semi-open state but are now likely to fall again with new lockdowns.
The October surge was caused primarily by strong growth in exports of agricultural commodities. China was set to increase ag exports as part of the Phase One trade deal. Calculations by US federal agencies confirmed that China had met its targets so far for ag purchases and other product categories as well. However, it was not simply compliance. China appears to be in the midst of combatting a food shortages. In August, the Chinese government pushed the “Clean Plate Campaign” as it has tried to push food conversation without causing panic. Pork, corn, and other vegetable supplies have dwindled as African swine fever plagues pig farms and flooding has ruined crop harvests. There is no doubt that these shortages have pushed Beijing to not only match the trade deal’s targets but to set monthly records.
Just because trade purchases seem to be normalizing does not mean tensions between the countries have dissolved. The US has now moved towards tightening Chinese companies’ access to its markets which it views as a possible threat since their activities can’t be entirely monitored. Primary examples include Huawei and TikTok, both of which were in the news for being at odds with President Trump’s administration in 2019 and 2020. Most recently, the US Securities and Exchange Commission (SEC) has considered forcing Chinese companies listed on US exchanges to have US auditors or face being delisted from those exchanges.
The move comes as the Chinese government challenges Jack Ma and his behemoth, Ant Group Co for his criticism of his country’s regulators. The internal struggle leaves the US worried that Chinese companies are more intertwined with their government than what is being portrayed. According to The Japan Times, President Trump has already acted by signing “an executive order banning transactions with eight Chinese software applications including Ant’s Alipay, and Tencent’s WeChat Pay”.
But in a little over a week, there will be a new leader in Washington and new Democratic control over Congress. The general feeling is that his administration will be friendlier to China, especially relative to the Trump administration, likely with less intrusive action taken. Normal trading between the countries is likely to resume which would help boost US businesses with more foreign demand for products as well as lower tariffs for incoming products. Even in a dovish environment, the US-China relationship is always tenuous and could deteriorate quickly if events occur that disintegrate the already thin level between the two global superpowers.