Long-term Benefits for China and the World Economy

Shanghai– After almost two years of trade tensions and negotiations, the US and China have finally signed on the Phase One trade agreement. A key US demand is that China will increase imports from the US by at least USD 200bn in 2020 and 2021 compared to 2017 import levels. Whether these targets can be reached in the next two years will be crucial for the future of this agreement, and US-China trade relations in general.

Reaching the USD 200bn target might not be as difficult as it looks. China’s imports are growing each year; by our forecast, China will import USD 5.2tr of goods and services in total in 2020 and 2021. To reach the target, USD 570bn of them would need to come from the US. The US’s share in China’s total imports would increase to 11% from 8.5% in 2017. This will take some efforts, but it doesn’t require China to cut its aggregate imports from the rest of the world.

In fact, China’s imports from the rest of the world would still grow to USD 2.4tr in 2021 from USD 2tr in 2017. Furthermore, the purchase agreement’s scope is broader than the regular definition of foreign trade. Notably, aircraft orders, rather than deliveries, are counted towards the goal. Financial and cloud services provided by US subsidiaries within China’s borders are also included. Therefore, China’s imports under standard trade metrics would not need to increase by 200bn.

Source:  Dr. XIONG Yi, China Economist, Deutsche Bank Research