January 15, 2020

Analysts believe China is unlikely to commit to purchases under US-China phase one trade deal

Commodity traders and analysts are sceptical to China's pledge to purchase US$32 billion in United States agriculture goods over two years in the phase one trade deal, reported Reuters.

The agriculture purchases, above 2017's US$24 billion baseline, along with a pledge to purchase US$50 billion more in energy supplies and additional US$80 billion purchases in manufactured goods, were details provided by a source briefed on the deal to be signed on January 15, 2020.

While the totals will cut the US$300 billion annual trade gap between the United States and China, Chinese commodity analysts are sceptical to how China will be able to purchase these US goods without hurting current trade relationships with other supplies, affecting its domestic production and amending import quota and standards.

Alicia Garcia Herrero, Natixis Hong Kong chief economist Asia Pacific said it's likely that China will have to conduct trade deviations away from existing goods' providers that compete with the US.

A China-based grain trader said the China's pledge to increase purchases of US agriculture products by more than US$30 billion over two years is alarming, since it's the increment is more than what the country purchases from the US in one year. The trader said it would be more realistic is US$32 billion is the total number.

Iris Pang, ING Hong KongGreater China economist said the fixed price from a single producer could cause supply disruptions and affect international crop prices. She said commodity prices would fall in the rest of the world, especially after import tariffs to China were cut. The US may end up not having an advantage over other economies.

Another grain importer from China said the country will purchase more soybeans, up to 40 million tonnes, and wheat if purchases will increase within the import quota.

However, yet another grains trader said the domestic market will be negatively affected if China fulfils its pledge under the phase one trade deal.

-      Reuters