U.S.-China Trade


U.S. and Chinese government officials just completed the 19th meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT). This year was the 25th anniversary of the first JCCT meeting in 1983 as a dialogue for resolving trade issues and developing bilateral trade opportunities. No major breakthroughs occurred at the meeting, which is good news and bad news.

U.S.-China two-way trade has grown from $5 billion per year in 1982 to $387 billion in 2007. U.S. exports to China have increased from $2.2 billion to $65.2 billion, the third largest export market for U.S. products. In 2007 U.S. soybean and products exports alone were $4.3 billion, almost twice the size of total U.S. exports to China in 1982. Total U.S. imports from China increased from $2.8 billion in 1983 to $321.5 billion in 2007.

Positive outcomes of the one-day meeting centered on intellectual property rights, health care and agriculture. U.S. movie, music, software and book industries estimate they lose $3.5 billion to piracy each year in China, up from $1.1 billion per year when China joined the WTO in 2001. Healthcare was guaranteed to make the list of issues after concerns raised in the U.S. over the last year about drug imports from China. China agreed to streamline procedures on importing medical devices, an $860 million market in 2007. China agreed to remove barriers to poultry imports from the U.S. related to avian influenza, except for Virginia and Arkansas, and to allow seven U.S. poultry processing plants to resume exports to China.

These agreements are important, but do not define new policy directions. This partly reflects that the Bush Administration will be done in just over four months. Keeping communication lines open are important, but the leaders were not working towards further outcomes next year. The low key results also recognize that most trade between the two countries operates without heated debates over currency values and sanitary and phyto-sanitary issues.

Despite the news about increased trade, U.S.-China trade is far from what it could be. U.S. agricultural exports to China were record large in 2007 at $8.3 billion, with 2008 trade to be still higher due to commodity price rises. As noted earlier, soybean and products exports totaled $4.3 billion in 2007; that was 51.9 percent of total agricultural exports. Raw cotton exports were $1.5 billion, 18.1 percent of total exports. Hides and skins were $0.8 billion, 9.6 percent of exports. These three product categories accounted for 79.6 percent of agricultural exports to China. Consumer oriented products, everything from meat to vegetables to tree nuts, were only $1.1 billion, 13.2 percent of agricultural trade. Poultry meat was the leader at $348 million; thus the importance of the avian influenza issue. Red meat exports (pork) were $195 million in 2007, double a year earlier, and 2008 sales will more than double again due to a shortfall in Chinese pork production.

U.S. beef continues to be left out of trade. At the JCCT the U.S. pushed for full market access for beef based on the OIE internationally agreed upon guidelines. China reportedly countered with only letting in beef less than 30 months of age. The U.S. declined, and the two countries agreed to technical talks on beef safety. There is no need for technical talks because this has already been hashed out at the OIE. This appears to be a case where China is using regulations to stop imports when it could easily allow market access.

Because of its strong exports of manufactured good in recent years, China has an estimated $1.6 trillion of hard currencies reserves mostly held in U.S. dollar denominated assets. That looks like the mercantilist policy of a couple hundred years ago when European governments exported products and amassed piles of gold. China does not need to restrict imports to protect a limited amount of hard currency or to protect the value of its currency. Since 2005 the Chinese government has allowed its currency to appreciate about 20 percent against the dollar. That is to slow for some policy analysts and politicians, but China is adjusting monetary policy to the new economic realities. The slow moving reforms have caused distortions in China’s domestic economy with slower growth in demand than would occur with a stronger currency and lower reserves. It has also resulted in slower export demand in the rest of the world, including agricultural products from the U.S. Middle income Chinese would be demanding more than $1.1 billion of U.S. consumer-oriented agricultural products if there was greater market access.

The U.S. and China can continue to have annual JCCT meeting where real work is done without ever addressing the critical issue of China opening its consumer markets as envisioned when it joined the WTO. That will continue to be the unacknowledged shadow in the room.

Some political leaders in both countries appear to believe they can play hard ball on monetary, economic and trade policy issues without suffering economic repercussions in their respective countries. That policy option became obsolete when China joined the WTO or shortly thereafter. China cannot afford to lose a chunk of the U.S. market due to a policy dispute, and the U.S. cannot afford to lose the products supplied by China nor what has become the third largest market for U.S. product exports. The U.S. could probably make the adjustments easier than China, but consumers and producers in both countries would be big losers.

China showed in the WTO negotiations that it will ignore its own best interest to continue its policy of managing trade. U.S. officials need to be clear thinkers on economic and trade policies until Chinese leaders realize that their best interests lie in increasing the standard of living through open trade rather than with managed trade with large currency reserves that make its citizens less well off.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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