China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.
By increasing goods imports from the U.S. by a combined value of more than $1 trillion over that period, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.
The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said. Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.
Minding the Trade Gap
America's trade gap with China eclipses its deficit with other trading partners
Source: U.S. Commerce Department
Note: Data are for 2017, goods only
It’s not the first time China has made an offer to reduce the deficit as a way of trying to break the deadlock between the sides which has darkened the global economic outlook and roiled financial markets since last year. In May, Trump scrapped a framework for a deal negotiated by Treasury Secretary Steven Mnuchin that would have seen China “significantly” increase purchases of U.S. goods.
By agreeing to buy more goods from the U.S., China may just shift its trade surplus toward other trading partners, said Tom Orlik, the chief economist for Bloomberg Economics.
If China switches its imports from other countries to the U.S. -- less Brazilian soybeans, more U.S. soybeans -- that might help deal with their bilateral problem with the U.S., but at the expense of worsening imbalances with other countries,” he said.
Additionally, the types of products that China offers to buy more of could matter more than the overall target for a dollar amount, Orlik said. Airplanes, soybeans and automobiles were among China’s top U.S. imports last year.
Even a massive buying binge would likely fail to eliminate the trade deficit with China, said Brad Setser, who served as deputy assistant secretary for international economic analysis in the Treasury during the Obama administration.
It’s not clear how quickly U.S. farmers and companies would be able to meet increased Chinese demand, he said. Increasing exports of soybeans would require more land dedicated to growing the crop and investment in storage capacity. Likewise, exporting more LNG to China would demand a surge in investment in export terminals. For Boeing, which has been straining to meet existing orders for its planes, it would likely mean adding a new plant.
Moreover, none of that would address U.S. demand for Chinese-produced goods and China’s control of the assembly of products such as smartphones and laptops, or some of the main drivers of the U.S. trade deficit. Shifting production or final assembly to a place such as Vietnam would do a lot to reduce the U.S. deficit with China but it would potentially be illusory.
No decisions were finalized in the latest Beijing talks and discussions are set to continue at the end of January, when Chinese Vice Premier Liu He is scheduled to travel to Washington.
The U.S. will miss an opportunity for discussions with its trading partners after President Donald Trump canceled his trip and the U.S. delegation’s visit to the World Economic Forum in Davos next week amid the partial government shutdown.
There’s no clear sign that such an offer would now have a greater chance of success or even if it’s practically feasible. U.S. negotiators are also focused on matters including China’s alleged intellectual-property malpractices and state support of industry, disputes that are much harder to bridge.
The offer implies raising the annual import total from $155 billion to around $200 billion in 2019 and in increasing steps thereafter, reaching an annual total of about $600 billion by 2024, one of the people said.
The Commerce Ministry in Beijing didn’t immediately respond to request for comment on the negotiation details. The office of the U.S. Trade Representative didn’t immediately respond to a request for comment.