By Josh Zumbrun
WASHINGTON -- Economic fallout from the coronavirus pandemic has
cast doubt on whether China can meet its targets to buy U.S. goods
under this year's trade deal -- with energy emerging as the biggest
casualty.
China has made strides toward its agricultural and manufacturing
targets, but it remains far behind -- maybe hopelessly far -- an
ambitious target for purchases of oil, natural gas, refined
petroleum products like propane and butane, and coal, prompting
concerns from the U.S. energy industry which is encouraging the
U.S. Trade Representative to increase pressure on China to reach
the goal.
The targets in the deal implied China would purchase around $25
billion of U.S. energy in 2020 and even more in 2021. The latest
data on U.S. exports for the month of May, released on Thursday,
show China has so far this year purchased only $2 billion of that
sum, near the year's midway point.
The collapse in energy demand and energy prices amid the
coronavirus pandemic explains part of why China is so far behind.
Nevertheless, China's U.S. energy purchases present contrast to the
strides it has made toward targets for the acquisition of
agricultural and manufactured goods.
"It's peculiar and concerning," said Anne Bradbury, chief
executive of the American Exploration and Production Council, which
represents oil and natural gas exploration and production
companies. "The energy sector has been incredibly hard hit by the
pandemic and now, more than ever, this agreement is important to
the industry."
As of May, China had purchased $5.4 billion of agricultural
goods, with a goal for the year of $33 billion in purchases. That
puts China behind, but it could still meet its targets, according
to calculations from Chad Bown, a senior fellow and trade data
expert at the Peterson Institute for International Economics.
Agricultural purchases are 39% of the pace needed to hit the
phase one goal. But agricultural purchases are heavily seasonal in
the fall when major crops like soybeans are harvested, giving China
time to catch up if the deal remains intact.
And China has purchased $19.5 billion of manufacturing goods,
where the goal for the year is $84 billion. That puts manufactured
goods at 56% of the pace needed to hit the goal, according to Mr.
Bown's calculations.
But energy is far behind -- running at only 18% of the pace
needed to reach the goal. Catching up in the next 7 months would
require massive purchases to begin immediately.
To hit the goal, China would need to start purchasing more than
$3 billion a month of energy, more every single month than it has
been able to purchase in the past five months combined.
A surge in domestic energy production over the past decade has
made the U.S. energy industry an exporter after decades of foreign
dependence, and China -- with its 1.4 billion-person population and
the world's second-largest economy -- represents the single largest
potential market for exports like American crude oil and liquefied
natural gas.
"We think China and the U.S. are destined to have a very strong
long-term LNG relationship and we need to keep nudging things back
on track," said Fred Hutchison, the president of LNG Allies, the
U.S. liquefied natural gas association.
The goals for energy exports were always aggressive, especially
for LNG which is a relatively new U.S. export, said Mr. Hutchison.
And the pandemic made the goals even harder, he said.
Because the two nations had agreed to a dollar target, the goals
become vastly more difficult when energy prices plunge.
"The purchase commitments are made in dollar (value) terms, not
volume terms, so even if China makes massive volume purchases, if
prices are close to zero they are not going to reach the dollar
value targets," said Mr. Bown, of the Peterson Institute, in an
email.
This explanation, however, hasn't stopped Congress and industry
groups from urging the USTR to amplify pressure on China to
increase energy purchases.
In June, members of Congress led by Rep. Jodey Arrington, a
Republican congressman from the oil fields region of West Texas and
House Republican Whip Steve Scalise of Louisiana sent a letter to
Robert Lighthizer, president Trump's top trade negotiator and the
head of USTR, urging him to do more to get China to buy U.S. crude
oil.
"Trade data reported in the first few months of 2020 reveal that
China has purchased a very small amount of U.S. crude oil in 2020,
while simultaneously increasing its imports from Saudi Arabia and
Russia," the lawmakers wrote.
"We urge you to continue to pressure China and hold it
accountable for all of its commitments," they said. "Specifically,
USTR should urge China to buy U.S. crude oil rather than purchasing
more crude from countries known for distorting the global oil
market."
But pulling out of the deal or sanctioning China isn't an easy
step for the U.S. to take without jeopardizing the progress China
has made purchasing agricultural or manufactured goods. During the
nearly two-year trade war, when Washington increased tariffs on
China, Beijing repeatedly responded by shutting down its purchases
of American farm goods, a dynamic that hammered the U.S. Farm
Belt.
Mr. Lighthizer has defended the purchase agreements, saying that
the trade data only reflect finalized exports, and don't reflect
purchase agreements that have been made but not yet fulfilled.
Another complication for the U.S. is that although China is
behind on the purchase targets of the phase one deal, it is also
one of the few reserves of economic strength globally for U.S.
exports.
The pandemic and lockdowns to prevent the virus's spread have
crippled trade around the world. But as the first to reopen its
economy after the pandemic, China has been a strong trading
partner. In April and May, China reclaimed its mantle as the
largest trading partner of the U.S. For most of the past two years,
during the trade war, it had dropped to third place behind Canada
and Mexico.
"I think the expectation is that China's demand for energy will
be strong as it continues to grow, and we have the capacity to sell
into that market," said Stephen Comstock, vice president of the
American Petroleum Institute.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
July 05, 2020 12:14 ET (16:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.