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Trade War Return Risk Rises With Tariff Cuts, Commitments Undelivered

While the world's focus in global supply chains has been on the impact of the spread of coronavirus, it appears that the prior preoccupation — the U.S.-China trade war — may be facing worsening statistics. U.S bilateral trade with China fell by 28.8% year over year in February, Panjiva's analysis of official data shows. That marked the 16th straight downturn and was led in dollar terms by a 31.3% slump in imports.

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The main driver of the decline in imports has been the use of section 301 duties by the U.S. against Chinese imports. During February, there was a cut in the rate of tariffs on imports of list 4A products — principally consumer goods — to 15% from 7.5% resulting from the phase 1 trade deal between the two countries. There have also been subsequent exemptions for medical-related products, as outlined in Panjiva's research of April 1, as the U.S. attempts to cut the barriers to vital imports during the coronavirus crisis.

Despite the drop in tariffs, however, the import of list 4A products dropped by 38.4% year over year in February, Panjiva's analysis shows, marking the fastest rate of decline for the product groups.

The most rapid decline in dollar terms has been among imports of network-equipped devices (HS 8517.62) where shipments slumped 33.7% lower while imports of large-screen televisions fell by 78.6%. Imports of the latter by major buyers including Best Buy Co. Inc. and Walmart Inc. dropped near to zero in February, Panjiva's seaborne shipment data shows, with only a handful of shipments linked to China Electronics Holdings Inc. and Samsung Electronics Co. Ltd..

Shipments of list 1 and list 2 products, where tariffs have been in place since July 2018 and August 2018 respectively and mostly reflecting components, have continued to decline. There was a drop of 18.0% in list 1 products and a 7.3% slide in list 2 products.

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Total exports to China from the U.S. meanwhile fell by 19.2% year over year despite the phase 1 trade deal's purchasing commitments made by China.

While the phase 1 deal only came into force during February, exports covered by China's purchasing commitments fell by 10.4% year over year in February after inching down 0.3% in January. That's not a surprise given orders from Chinese importers likely fell as China entered a widespread lockdown to deal with coronavirus.

In dollar terms, the main drop in U.S. exports was a 54.9% slump in vehicles which likely included a 91.7% slump in shipments of electric vehicles. In turn, that was likely due to the opening of Tesla Inc.'s Shanghai factory reducing the need for shipments of vehicles manufactured in North America.

Among commodities — where the Chinese government has more control over imports — crude oil exports fell to zero. Oilseeds, which are principally soybeans, are at the tail end of the normal delivery season and slumped 62.9% lower. A pickup in agricultural exports later in the year will also depend on American farmers being able to complete both the planting and harvesting seasons in the face of the coronavirus spread.

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The 2020 target implied by China's purchasing commitments is equivalent to a monthly average of $11.93 billion of imports of the 542 products covered by the deal per month in 2020. In February the figure was just $4.43 billion after $4.86 billion in January.

Achieving the total for the year — and averting the risk of a restart of trade hostility between the two countries ahead of the U.S. elections — will require a reflation both of demand in China as well as a continued capacity for exports from a locked-down U.S. economy.

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Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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