Specifically, Sands states that even before the impact of the COVID-19 crisis around the globe, the agreement still didn't manage to boost January's volumes.
To remind, the President Donald Trump signed a partial trade deal with China on January 15, in attempt from the world’s two largest economies to contain an economic struggle. According to the deal, the Trump administration aspires to address American concerns over Chinese trade abuses.
However, it is stated that although the agreement brought some relief in the shipping market as a further deterioration of the China-US ongoing war, it failed to bring extra volumes, with January representing a backwards step from the starting line, rather than a strong start to the year, meaning even more ground has to be covered in the remaining months of the year.
Credit: BIMCO
In addition, the agreement between the two countries states that the US exports of the manufactured goods should increase to USD 75.4 billion in 2020, up from USD 40.8 billion in 2019, representing an 86% growth rate. However, although this growth rate is already high, it lacks in comparison to the 126% growth needed for agricultural exports to rise from USD 14.7 billion in 2019 to USD 33.4 billion in 2020, let alone the 730% growth needed to increase energy exports to meet the goal of USD 26.1 billion this year from just USD 3.1 billion last year.
Therefore, Pete Sands commented that
With only a year to meet growth targets of this magnitude, every month counts and strong growth is needed right from the start of the year and in this respect, January has disappointed.
This is because energy imports fell dramatically to just USD 25.7 million, less than 0.1% of the USD 26.1 billion commitment from China for the full year, and just under half of exports in January 2017, the level which has to be consistently beaten by quite a margin in every month this year.
Concerning January:
- US exports: 1.6% decline
- US agricultural goods: 43.3% decline
Exports in January for both of these categories of goods were around 4% of the total exports needed if the commitments are to be met.
Moreover, it is highlighted that the decline in exports cannot be linked to the COVID-19 outbreak, as it had a limited impact on the Chinese economy in January and no effect on its trade with the US.
In February, Peter Sands, concerning the coronavirus crisis, reported that the virus affected the exports at that months and will continue to do in the following months, commenting that "When China sneezes, we all catch the flu."
The reality, according to Sands, is that exports in the first quarter of the year are unlikely to deliver any growth, let alone the high rates needed to meet the commitments in the agreement.
It is highly unlikely that the next three quarters of the year will see exports on track to meet the target, let alone to make up for missing volumes in the first quarter.
Because of the challenges expressed above, it is recommended that agricultural goods, such as soya beans, need to be planted in the coming months, with soya bean farmers in the US now facing the decision of what to plant for the coming harvest.
Also, the sudden drop in the oil price following the breakup of the OPEC+ alliance means that volume growth in the energy exports will have to be even higher than the value figures suggest, as each tonne of crude oil is now worth considerably less than it was just a week ago, let alone 2017.
Sands concluded that
Developments across the globe since the agreement was signed in mid-January, from the coronavirus outbreak to the falling oil price have made it even less likely that China and the US will be able to live up to their commitments and thereby help boost demand for the shipping industry. If the agreement is to make sense, a revision may be needed when the dust has settled around the coronavirus disruptions and there is once again room to focus on trade policies.
