External expectations suggest that the third round of trade negotiations between the United States and China, taking place in Sweden this week, will likely extend the tariff ceasefire period. There are also reports indicating that China may commit to “significant purchases” of American goods in exchange for the United States reducing tariffs.
However, data from Chinese customs authorities show a significant decrease in the volume of imports of various American goods in recent months, with some even coming to a complete halt. This casts a shadow over the outlook for implementing the US-China trade agreement.
The South China Morning Post reported on Monday that analysts predict the focus for the United States will be to ensure that China agrees to import more American petroleum, liquefied natural gas, and other goods, similar to the “phase two” trade agreement between the two countries.
Just the day before, the United States reached a framework trade agreement with the European Union, with the EU pledging to increase imports of American energy and military equipment.
Another report from the South China Morning Post cited sources familiar with Beijing’s position, stating that the focus of the previous two negotiations for China was on risk “downgrade,” while this meeting may apply pressure on the American trade delegation regarding tariffs related to fentanyl.
For a long time, China has been a major buyer of American energy and agricultural products. As trade and technology issues intensify tensions between the two countries, China’s imports of various American commodities have significantly decreased or come to a standstill.
According to data from Chinese customs, imports of liquefied natural gas (LNG) from the US decreased by 66% year-on-year in February, to 65,750 tons, and remained stagnant from March to June.
In the first five months of the year, China imported 136,400 tons of American crude oil, a 68% decrease year-on-year, while imports of American coking coal fell by 87% to 76,200 tons by April.
The data indicates that these two major commodities imported from the US by China have practically stalled since May and April.
Wang Yiming, a professor of international relations at Renmin University of China, told the South China Morning Post that due to the drastic fluctuations in tariffs and exchange rates between China and the US, both sides in the energy industry are “avoiding trouble” and suspending trades.
Official data from China shows that imports of corn from the US plummeted by 92.84% year-on-year to 785,143 tons in the first half of the year. Beef imports from the US also decreased to 1.3 million tons, down 9.47% year-on-year.
Lynn Song, Chief Economist for Greater China at ING Bank, stated that energy and agricultural products may still be the focus of potential purchase agreements between China and the US because of their high standardization levels and flexibility in import sources.
Mark Williams, Chief Asia Economist at Capital Economics, noted that China’s recent significant reduction in energy purchases from the US is because it can “relatively easily” source oil, coal, and natural gas from other countries.
He believes that while China is likely to adhere to commitments to purchase American energy in the future, the “phase two” agreement may face setbacks in more complex goods and services trade, as there may be discrepancies between the volume of goods the US seeks to sell and China’s demand.
In early 2020, the US and China signed a “phase one” trade agreement, with China pledging to increase purchases of American goods and services by $200 billion on the 2017 baseline.
However, a report from the Peterson Institute for International Economics (PIIE) stated that China had only purchased 57% of the pledged purchases.
Sources familiar with Beijing’s stance cited by the South China Morning Post mentioned that China hopes to pressurize the American trade team regarding tariffs on fentanyl in the upcoming third round of trade negotiations.
According to PIIE data, the average tariff on American exports to China currently stands at 51.1%. Beijing considers this level too high, particularly after accommodating the 25% tariffs imposed by Trump during his first term.
An editorial in the Communist Party’s People’s Daily on Sunday expressed willingness to cooperate with the US and make substantial progress.
Jamie Jamieson Greer, a US trade representative involved in the negotiations, openly set low expectations for the talks on Monday, not anticipating any “major breakthroughs.”
Greer told CNBC’s Squawk Box program, “I don’t expect any major breakthroughs. What I expect is to continue to monitor and review their compliance with the agreement so far.”
He also mentioned President Trump’s satisfaction with tariffs, indicating preference for setting tariffs through letters rather than reaching agreements.
President Trump, currently on a visit to the UK, stated at a press conference that both the US and China are taking a tough stance in negotiations, and he will be waiting to see the outcome of the talks.
“Sometimes I do things that shouldn’t be done, because those things are not important to our country, but they are significant to the other country. I will make them understand this because it is very important to them,” Trump added without specifying the issues.
Following the second round of negotiations, China began easing export controls on rare earths to the US, while the US also agreed to allow the export of NVIDIA’s H20 chips to China.
Most analysts also believe that the negotiations in Stockholm, Sweden, will not bring about fundamental changes.
Frederic Cho, Vice Chairman of the Swedish-Chinese Trade Council, stated that extending the deadline for suspending tariff increases is the most likely outcome.