China Will Struggle to Honor Trade Commitments

Mish

The coronavirus outbreak will seal the fate of China's trade commitments but both the US and China are in denial.

Here's a headline I don't believe: a senior U.S. official says Outbreak will not Change China's Commitments to Buy U.S. Goods.

The U.S. government expects China to honor its commitments to buy more U.S. goods under a trade deal signed by the world’s two largest economies in January despite the fast-spreading coronavirus outbreak, a senior U.S. official said on Thursday.

China’s commerce ministry on Friday said January and February exports and imports would be hit by the coronavirus outbreak, but foreign companies in most places would resume production by the end of February.

Under the deal, which took effect this month, China pledged to increase U.S. goods purchases by $77 billion in 2020 and by $123 billion by 2021, compared with a baseline of U.S. imports from 2017, the year before the U.S.-China tariff war began.

Experts had expressed skepticism that China would be able to meet such aggressive purchase commitments even before the coronavirus emerged, while reports of new cases in China and elsewhere have further intensified fears over its impact on the global economy.

But the Global Times newspaper, which often speaks for the Chinese government, reported on Thursday that China was likely to buy 10 million tons of U.S. liquefied natural gas despite a gas glut.

I am standing in line with the skeptics.

And color me skeptical on that production resumption as well.

What percentage of normal production will China have back up?

Mike "Mish" Shedlock

Comments (6)
SMF
SMF

Won't China have to import more now until their production resumes to prior levels?

No. 1-5
Tony Bennett
Tony Bennett

"but foreign companies in most places would resume production by the end of February."

...

Sure sure

Oh, I get it ... February 2021? ... 2022?

Zardoz
Zardoz

“‘Tis but a scratch”

abend237-04
abend237-04

It depends on the product. I was always amazed at how quickly smart people in a scramble could recover production delinquency from some apparently catastrophic line-down situation on a stable, reliable product already in volume production.

Going line-down on a ramping, or problem child product, however, is a whole different animal. You're already holding WIP to a minimum trying to avoid huge scrap and rework hits while getting the kinks out. When that's the case, there's not much slack to pull out of the material supply train, which can be months long.

In all cases, if the build kit is 1,000 parts, you can't bring the line up again with 999 and every shift you're down compounds the problems associated with process control.
I feel for the Chinese, and hope this is their, (and the world's), biggest problem 6 months from now.

RayLopez
RayLopez

Of course China also has a history of not honoring agreements (Chinese saying: "A signed contract is just a pause in negotiation").

PS--why isn't the DJ-30 down 10k points? And when that happens, is that a buying opportunity?


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