China Pledges US Buying Spree to Reduce Trade Surplus With US to Zero By 2024

-edited

China pledges to buy over $1 trillion in US goods and services by 2024 to eliminate the trade gap with the US.

In discussions that are not yet public, and will likely be empty promises, sources say China Offers a Path to Eliminate U.S. Trade Imbalance.

China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

By increasing goods imports from the U.S. by a combined value of more than $1 trillion over that period, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

By agreeing to buy more goods from the U.S., China may just shift its trade surplus toward other trading partners, said Tom Orlik, the chief economist for Bloomberg Economics. “If China switches its imports from other countries to the U.S. -- less Brazilian soybeans, more U.S. soybeans -- that might help deal with their bilateral problem with the U.S., but at the expense of worsening imbalances with other countries,” he said.

Additionally, the types of products that China offers to buy more of could matter more than the overall target for a dollar amount, Orlik said. Airplanes, soybeans and automobiles were among China’s top U.S. imports last year.

“Over the years, China has used the offer of purchasing more technologies with national security applications as a gambit in trade negotiations,” said Orlik. “That’s always been unacceptable to the U.S. because of the strategic costs.”

Even a massive buying binge would likely fail to eliminate the trade deficit with China, said Brad Setser, who served as deputy assistant secretary for international economic analysis in the Treasury during the Obama administration.

Closing the trade gap “would require enormous changes and it would require and all out effort to get a Chinese industrial policy to disguise China’s exports to the U.S. by routing them elsewhere,” said Setser, who is now at the Council on Foreign Relations. “You can’t get rid of the bilateral deficit unless you shift the location of final electronics assembly out of China. The math doesn’t work.

Math Doesn't Work

Even though the math doesn't work, Trump will proclaim the greatest trade deal in history.

Economist Brad Setser had a series Tweets discussing the purported deal. Here is the first of 13 Tweets.

Tweet 13 Discusses Phones

Assume for a second that happened. Here's the result.

The US deficit with Vietnam or some other country would rise.

Boosting U.S. Exports to China by $200 Billion Is a Tricky Task

​Also consider Boosting U.S. Exports to China by $200 Billion Is a Tricky Task

Dear Xi Jinping, Could we interest you in 500 million metric tons of soybeans? How about five Ford-class aircraft carriers and 465 F/A-18 fighter jets? Forty trillion cubic feet of liquefied natural gas? Around 2.8 billion barrels of crude oil? Two and a half million Tesla Model X SUVs?

We’re just trying to make the math work here.

“I don’t see any plausible way that you could reduce the bilateral deficit by $200 billion in two to three years,” said Brad W. Setser, a senior fellow for international economics at the Council on Foreign Relations. “You work through individual sectors, and it’s hard to get close to even $100 billion over that time frame, let alone $200 billion.”

Mr. Setser estimates that a realistic hope for a near-term increase in soybean exports to China is about $5 billion, which would likely come at the expense of other Chinese trading partners, such as Brazil.

Mr. Setser cautioned, Mr. Trump might not like the resulting math. In nominal dollars, he said, American imports from China are growing by about 10 percent a year. If that rate keeps up, it would wipe out some or all of any trade-balance gains that administration officials secure in their negotiations with China.

Bottom Line

Ain't Gonna Happen

Mike "Mish" Shedlock

Comments (31)
No. 1-17
channelstuffing
channelstuffing

what they're buyin is time,beijeng bankin that trump will hit the bricks in 2020 and hillery or maxine will be much more agreeable (for the right price)!

Irondoor
Irondoor

As always, when it comes to China, we’re the loser. Can we send them some of our Mexican “imports”?

gregggg
gregggg

China will do anything to keep the top G5 companies working with the. The will easily steal more dollars of technology than goods they buy.

Stan88
Stan88

Revalue Gold much higher and then China can buy 1 trillion of Gold from us over a 5 year period. It is a good way for China to get rid of its dollars.

Realist
Realist

This was the predictable result of the trade war. China throws Trump a bone by offering to buy a few more US exports. They then transfer the last 1% of some manufacturing to other countries so it reduces their calculated exports to the US. Trump claims ”mission accomplished” but nothing really changes (like NAFTA). It also reduces trade tensions and keeps the world economies growing slowly. No recession on the horizon.

Sechel
Sechel

stupid offer and acceptance. the only issue is bad trade practices. end corporate espionage and intellectual theft and let the private sector figure it out. our only goal should be reducing tariffs and barriers , not engaging in 'managed trade'

Anda
Anda

Purchasing from competitive foreign production, although it saves own effort, still has a cost. This means that you must accept return purchase of own wealth in exchange, or there would be no trade. For now many of the dollars sent abroad are reinvested in the US , they do not sit in a foreign account. When they are used in purchase, whether in the US or abroad, they both propagate the dollar system, as well as drawing off US influence, as the purchase will be to the benefit of that foreign buyer. As long as the dollar system is seen as holding value better than other systems, it will be used. If it loses credibility, and redemption is demanded, and the US domestic offering is seen as of little value, and other foreign acceptance is rejected, the currency might fail. This would be similar to a fast rate adjustment that saw the dollar revalued to reflect what the US was worth to foreign buyers (that would mean their own currency would be stronger), not what the US thought it's own currency was worth. The US does not enjoy the current level of prosperity because it is producing it, it merely secures it. Other countries will go with that arrangement only as long as that suits them.

bayleaf
bayleaf

But but but weren't Trump's tariffs supposed to be catastrophic??? And looky here, China is the first to blink in this trade war! So now the marvelous predictions have moved from "the end of the world" to something in the range of "too good to be true" to "somewhat of an improvement" for trade with China? Gee, it looks like Trump's strategy might be working after all.

thimk
thimk

But can the US compete in a global marketplace to produce goods for export ? Let china assemble final product. we could produce components.

ReadyKilowatt
ReadyKilowatt

Not looking forward to more Hollywood drivel aimed at Asian markets. And record revenues for the studios. Go Long on Disney/Marvel since Warner/DC still can't seem to figure out the formula. Pretty much all we can make that China seems interested in buying these days, at least since the iPhone Xs landed with a thud.

And the over-50 crowd that wants a human scaled storyline will just need to buy a bigger TV if they want the theater experience. At least the food will be better.

RonJ
RonJ

"...less Brazilian soybeans, more U.S. soybeans -- that might help deal with their bilateral problem with the U.S., but at the expense of worsening imbalances with other countries,” he said.

As Newton figured out, for each action, there is an equal and opposite reaction.

After an ebb, there is a flow. The trade imbalance chart above is building to a snap back reaction. Once a cycle reaches the 90 and 270 degree marks, there is an inflection point that reverses the phase.

Mish
Mish

Editor

"Did you not read what Mish wrote?"

Apparently not.

Ho hum. China stops buying soybeans - starts again. Record trade deficit last year. All kinds of businesses hurt badly by tariffs. New NAFTA nearly identical to old NAFTA. Trump has accomplished nothing and this is just more talk like that with the EU that went nowhere.

With the US running $trillion deficits as far as the eye can see, someone is going to be accumulating a trillion dollars as far as the eye can see. If China improves, Vietnam, Mexico, or Europe will go the other way.

yooj
yooj

Equities would rally, not on any economic benefit from such a stand down, but just on reduction of harm Trump’s market manipulations have been inflicting.

Snow_Dog
Snow_Dog

“Even though the math doesn't work, Trump will proclaim the greatest trade deal in history“

Right, okay, got it. The math doesn’t work.

Speaking of the math not working, some stooge from the CFR takes a God-awful 13 Tweets to tell us how it’s all going to play out and we’re still listening?

No. Setser is just another status quo establishment economic analyst (I won’t even elevate him to an outright economist) who serves the motives of keeping The Swamp from being drained.

Mish
Mish

Editor

"Speaking of the math not working, some stooge from the CFR takes a God-awful 13 Tweets to tell us how it’s all going to play out and we’re still listening?"

What precisely did he say that you disagree with? All you did was make an ad-hominem attack. Baseless.

I do not always agree with him, but this time I do. But calling someone a stooge while providing no other rationale is pathetic.

Wilindan
Wilindan

Reducing the US trade deficit to zero sounds tempting, but I hope that smarter minds than mine have puzzled through the ramifications.

For example, if China’s trade surplus with the US goes to nil, what does that mean for Chinese demand for US treasuries? If that demand is substantially reduced, what does that mean for interest rates and capital markets in the overly-financialized US economy?

Also, if the US trade deficit with China disappears, does that mean fewer US dollars will flow to international markets? Would that result in a dollar squeeze on some emerging market economies, which would be exacerbated if those countries run a higher trade deficit with China as a result of this tectonic shift in trade between US and China?

Also, if fewer US dollars flow outside of US borders, would USD value go up, making imports into the US cheaper and thus rendering reducing the trade deficit with China a moving target (apologies if this is already covered by Setser’s tweets, but I can’t seem to access those in Mish’s post)?

jackn303
jackn303

Trump didn't negotiate the NAFTA trade deal. His team did. If you don't like Trump say so. It took five presidents to get us into this financial mess, and Trump wasn't one of them.