Thread by @Brad_Setser

China hasn’t confirmed the $200b (over 2ys) increase in purchases, so it may not be “real.”

But I don’t doubt China’s ability to give Trump the appearance of a “win” here. China’s bureaucracy has lots of experience meeting … (umm) ambitious … official growth targets.

1/ x

China hasn’t said much, and the USTR fact sheet doesn’t provide any real detail either – so it could mostly be spin.

The only real detail is the$40b a year target for US ag ($50b is spin, not a commitment)

2/ many

ustr.gov/sites/default/…

But let’s take the commitment seriously as well as literally -- The 2017 base in the US data (goods and services) is around $175b – so $350b using a 2y horizon.

Adding $200b to that over 2 years thus seems ... challenging.

3/x

reuters.com/article/uk-usa…

But now think a bit more strategically. Presumably the goal is to appear on track to meeting the goal in 2020, as who knows what 2021 will bring.

And, if you raise U.S. exports by $60b in 2020, any half way decent spin operation can say you are on track to meet the goal.

4/x

plus $60b in year one puts you on track for + 120b in year two, and then round a bit ...

5/ many

For better or for worse, I happen to know the ins and outs of the trade data reasonably well. And if China’s government ever asked me for a plan to raise China’s imports from the US by $60b next year, I could deliver one –

6/x

First, ag. The Chinese have committed to buy $40b in 2020, or $15b more than in 2017. That’s relatively easy, despite some skeptical commentary.

Remember, China’s agricultural market is both relatively protected and effectively controlled by the government ...

7/x

Tilting soybean imports toward Brazil raised imports added ~ $8b to Brazil’s exports (and $1b to Canada’s exports). Getting from $12b to $18b or so for the US will be easy. At its peak, Brazil supplied ~ 75% of China’s soy demand. Getting U.S. up to 50-60% is feasible.

8/x

Plus, China can double “crop” on its usual harvest buying in calendar 2020, as it still can buy a decent share of the 19 crop in q1 and then front load its 2020 crop purchases in q4

9/x

It should be easy to get an extra $5b in pork and beef – China’s market is exploding, thanks to swine fever. & there is supply available in the US, at a price. U.S beef and pork would become more expensive, freeing up US supply to sell to China.

reuters.com/article/brazil…

10/x

There are a host of smaller things that can deliver a billion here (chicken paws) and there (sorghum, distiller’s dried grains and other animal feeds). Add in pecans and almonds and some canned goods and you are almost at the target.

11/x

cfr.org/blog/chicken-f…

Second oil and gas. The US is exporting ~ $175-200b a year now. China bought about $7b from the US in 2017, but its imports from the US were rising fast before the trade war broke out. It wouldn’t be that hard to get to $20b, or higher, without really trying.

12/x

Now you need to get a bit more creative …

The third plank in my plan is … plastics. Ethylene and bulk chemicals. Big numbers are possible there. U.S. exports are in the $100b a year range – China could buy more ...

13/x

The fourth plank is to resume imports of US trash. This is not a joke. See the link.

(The actual content of U.S. trade with China is rather different from the “digital” future in all the consulting reports)

14/x

npr.org/sections/goats…

The fifth plank is Hong Kong. The US now export about $50b to Hon Kong ($40b goods, $10b of services) – and the bulk of that doesn’t really stay in Hong Kong. Find a way to get the ships to dock on the Chinese side of the Pearl River delta ...

15/x

China's modern day mandarins have had two plus years to figure this out ...

Year 1 is doable.

Year 2? Not so much

16/x

What have I left out –

Aircraft, as Boeing isn’t producing 737s that can fly these days – and China wants to reserve a part of the narrow body market for the C919.

17/x

Chips, as the US chip designers don’t produce in the US and Intel would rather not export directly to China (it prefers to do its testing elsewhere and then ship to China).

And China is determined to make more of its own chips over time.

18/x

And autos, as BMW is going to make a higher share of SUVs for the Chinese market locally over time.

19/x

I am of course making fun of Trump’s obsession with the bilateral trade numbers – which is pretty easy to game.

China can take advantage of Trump’s desire to find something tangible (like purchase commitments) to hype.

20/x

Yet I am actually sympathetic to the notion that some well defined goals have a role to play in the trade talks. China’s imports of manufactures for its own use are low (and falling over time) and goals for imports of manufactures might offset "buy China" state plans.

21/x

I am a realist on this – China in my view has lots of tools to manage its trade, and has shown no sign of being willing to give them up.

22/x

cfr.org/blog/china-nev…

But the key is not to go for the “easy” wins – ag and oil are the things that China really needs to import, and has long been willing to give. The valuable commitments are in the things China doesn’t want to import ...

23/x

Would thus like to see big commitments to buy US made medical equipment, big orders for narrow body planes (if Boeing can produce them) and other commitments to buy items on China’s import substitution lists.

24/x

But so far at least the "deal" looks to be centered around China's easy gives. Gets you big numbers fast.

Not around the kind of commitments that would make a real difference over time.

25/25

cfr.org/blog/taking-ma…