China is far behind and is ‘never gonna catch up’ with the Phase 1 trade agreement with the US, an expert says


Kevin Lamarque/Reuters

  • Scott Kennedy of the Center for Strategic and International Studies, told CNBC’s Squawk Box that China may never catch up with its commitments under the Phase One trade deal with the United States.
  • He said: “If it’s really based on the genuine commitments that they inked in January, they’re far behind and they’re never gonna catch up.”
  • China and US signed the deal in January after more than a year of trade disputes. 
  • But tensions between both countries have increased over Hong Kong legislation, as well as who is responsible for the COVID-19 pandemic.
  • Recent data by the Peterson Institute for International Economics, showed China has bought less than half of the imports it should have from the US by the first half of the year. 
  • Visit Business Insider’s homepage for more stories.

China is lagging far behind its commitments under the phase one trade deal with the US and is likely to never “catch up” with them, an analyst warned. 

Scott Kennedy, senior advisor and Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies, told CNBC’s “Squawk box” Friday, China has fallen short so far and is unlikely to meet its target.

The US and China signed the so-called Phase One trade agreement in January, in what was celebrated as a major milestone in ending the trade dispute that had been flaring since May 2018, which saw each slap billions of dollars in tit-for-tat tariffs on imports of each others’ goods and services. 

But Kennedy said: “If it’s really based on the genuine commitments that they inked in January, they’re far behind and they’re never gonna catch up.”

The deal requires China to increase its purchases of US farm and manufactured products, energy and services by $200 billion over the next 2 years. All of this is on top of the purchases it made in 2017. China is the third-largest export market for the US and buys aircraft, machinery, medical goods and agriculture, among other goods.

But a raft of data suggests China is far from reaching this target. 

A recent report by the Peterson Institute for International Economics found that in the first six months of the year, China’s total imports of covered products from the US totalled $40.2 billion compared to a prorated year-to-date total of $86.3 billion. This means China’s compliance was less than 50%. 

US and Chinese officials are due to hold discussions over video conference on Saturday to review the progress of the deal for the first half of the year.

US and China have clashed on issues far beyond trade 

Relations between both countries have almost become the worst they have ever been in recent months, on issues far beyond trade, bringing into question whether any deal is still viable.

White House adviser Larry Kudlow said this week the deal is “fine right now,” but this is likely to be met with skepticism, given the deterioration in diplomatic relations between the two sides. 

The two have recently clashed over China’s new draconian law that changes Hong Kong’s legislation.

China argued the law was required on security grounds, but its critics said it violates Hong Kong’s “One Country, Two Systems” policy that has been in place since 1997. 

The countries have also been at loggerheads over who is responsible for the coronavirus outbreak. Trump has repeatedly lay the blame for the rapid spread of the virus on China, a claim Beijing has strenuously rejected.

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The row deepened in July when the US ordering the closure of the Chinese consulate in Houston and China subsequently ordered the closure of the US consulate in Chengdu  late last month. 

Washington has also cracked down on what it says is intellectual property theft by China and curtailed use of Chinese-made technology and telecoms, most notably when it blacklisted Huawei, the world’s second-biggest smartphone maker and banned US companies from doing business with it.

The Securities Exchange Commission urged Trump officials days ago to delist Chinese companies that trade on US exchanges if they fall short of meeting US auditing requirements by January 2022. 

US President Donald Trump last week sought to ban video-sharing app TikTok. 

Kennedy said the trade dispute between both countries has shifted from one about trade imbalances into a “fundamental strategic competition” where both the US and China are portraying each other as an “existential threat.”

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He stressed though the deal is “the only reason the Chinese are buying agricultural goods from farmers in red states that the president needs for reelection,” and therefore he thinks it is unlikely the US administration would “junk” the deal. 

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