Thread by @Brad_Setser

The substantive innovation in the phase one deal is very Trumpian -- numerical import targets for China (which can be assessed using either the US or the Chinese data)

Focusing on outcomes rather than writing "rules" is a shift in policy.

1/x

I am going to focus on the targets for goods, as the "services" target includes items that aren't in the trade data (a footnote indicates it includes financial services US firms provide in China). The goods only commitment is an increase of $64b in 20, and $98b in 21

2/x

There is an opt out for China tho -- the US is supposed to take appropriate steps to make goods available for China to import, and China can argue that the US hasn't allowed it to meet its commitment with export restrictions

3/x

Someone should ask if the Chinese believe that their commitment on manufacturing is contingent on reforms to US export controls, and/or lifting limits on what Huawei can import.

4/x

I am not doctrinaire on this -- "rules" based concessions from China have tended to under-deliver (one restricion goes away, another pops up). China imo never stopped managing its trade (through big SoEs that dominate a lot of imports). The old approach was delivering

5/x

As a share of China's GDP, China's imports of manufactures from the US are under 1/2 of what they were before China joined the WTO (counting exports to HK).

That's not a great record.

6/x

Of course, the new approach has problems -- China can meet its commitments by diverting its import demand away from US allies toward the US (so they need not imply any overall increase in China's imports, and could come at the expense of global growth/ US exports to others)

7/x

No matter what measure you use, China's imports from the US had stalled after 2012 (well before Trump's trade war). And if China delivers its commitments, there would be a meaningful increase in US exports to China (tho not necessarily US exports to the world)

8/x

I did a rough cut of China's commitments by category (the categories won't exactly match ... tis rough)

The only way China could meet its manufacturing commitment I suspect is through big purchases of bulk chemicals + perhaps getting Intel to ship directly to China.

8/x

The ag commitment for 20 looks to be in the $35-40b, which seems very doable (more on that later)

the oil, gas and coal commitment is something like $25b, or $2b a month (US was doing $1b before the trade war, and this was growing fast)

9/x

With China's state oil and gas companies available to help China meet its commitments, I suspect China can deliver on the energy side ... I also suspect the overall impact on the US economy will be marginal, and more exports to China = less to export to others.

10/x

and strategically, I have always thought the US should prioritize exporting LNG to its allies (helping their energy security) over exporting to China, but Trump and his team obviously have a different view.

11/x

As for the agricultural commitment, I really do think swine fever has made the impossible possible. China's meat imports this fall were running at a $21b annual pace, 3x their 17 levels.

So pork, chicken and beef alone could come close to delivering the 2020 target

12/x

And this means that the windfall that other ag exporters have enjoyed over the past year will disappear ... as Trump wants that for the great American farmer alone.

(& I have no idea how China meets the 2021 commitment if its swine herd recovers)

13/13