Dear Xi Jinping,
Could we interest you in 500 million metric tons of soybeans?
We’re just trying to make the math work here.
Negotiators from Mr. Xi’s government have offered the Trump administration a deal to buy $200 billion of American goods, in order to defuse escalating trade threats between the United States and China — including Mr. Trump’s vow to impose tariffs on as much as $150 billion of Chinese imports. The purchased goods would be an effort to reduce America’s trade deficit with the Chinese, which reached $375.2 billion last year, and which irritates Mr. Trump to no end.
Administration officials are confident such an agreement could be reached soon. A senior administration official said Friday that the Chinese would commit to reducing tariff and non-tariff barriers that hinder American goods from flowing into that country, allowing an additional $200 billion of American sales to China by 2020.
Many experts, though, doubt that plan could work as advertised.
“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.”
Here are some potential ways China could increase its purchases by $200 billion — and the trouble that emerges in making the numbers add up.
Option 1: Fire Up the Farms
The United States exported nearly $20 billion worth of agricultural products to China last year. More than $12 billion of that was soybeans. So perhaps China, the world’s largest importer of soybeans, could start by buying a lot more of its soy from the United States.
In total, America exported $22 billion worth of soybeans last year, and its soybean production has risen steadily over the last decade. But the country’s total crop is worth just over $40 billion annually. It’s hard to see how it would quintuple in the span of a few years.
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.
Option 2: Go Big on Fossil Fuels
Administration officials have high hopes that China could start buying a lot more liquefied natural gas from the United States. It’s a boom industry: Those exports quadrupled last year, with China as a major buyer.
Again, though, the problem is scale. China bought $2 billion worth of liquefied natural gas last year from the United States, double the amount from 2016. It bought about $7 billion worth of other fossil fuel products, including coal and crude oil. If you optimistically doubled those purchases right away, that would still give you less than $10 billion in additional exports, though the number would grow over time. Such an increase would require a massive ramp-up in energy infrastructure, particularly for gas exports.
“We don’t have the liquefaction facilities constructed yet to automatically turn on the spigot,” said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics.
Option 3: Try For Technology (Even for Defense)
China might not need all those soybeans, but it would love to buy more American semiconductors: Mr. Setser notes that the Chinese imported about $200 billion worth of those crucial building blocks for electronic goods last year, but just $6 billion of them from the United States, which exports about $50 billion in semiconductors worldwide. The Chinese have indicated they would be willing to ramp up the share of American semiconductors they buy as part of an agreement with Mr. Trump.
That’s still not $200 billion, but it’s a start, which could continue with other high-tech goods that the United States exports a lot of. China could stop buying new jets from Airbus and only source from Boeing, for example (though Boeing appears to be backlogged on filling its orders from around the world). It could buy more cutting-edge American-made cars, such as Teslas.
China would probably love to go a step further and buy fighter jets, aircraft carriers and other advanced defense weaponry from the United States — but for national security reasons, that pitch would probably never fly.
Option 4: Sell Some Services
Mr. Trump is focused heavily on the trade in goods between China and the United States, particularly goods made in industrial Midwestern factories that have shuttered and moved their jobs abroad.
But the United States doesn’t just trade goods with China. It also trades services — and in services, it runs a surplus with the Chinese. One way to approach $200 billion would be to put services on the table, and look for ways to enroll more Chinese students in online American university courses, attract more Chinese tourists to American theme parks or open up China’s financial services market to Wall Street banks and other financial firms.
Option 5: Stretch Out the Math
Neither Mr. Bown nor Mr. Setser find it realistic that a combination of the options above would add up to the administration’s goal, over the span of one year. But it might look more achievable as a three-year accumulation of purchases, through 2020. (Sort of like how the administration passed a $1.5 trillion tax cut in Congress last year — with that total being for a 10-year window.)
Option 6: Get Americans to Buy Less
Even then, 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.
Mr. Setser said he suspects the import growth will continue, in part because of Mr. Trump’s tax cut, which is giving consumers more money to spend on electronics, clothing and other Chinese-made goods.
So unless Americans stop buying Chinese TVs, toys and clothing, the trade deficit may not budge as much as Mr. Trump wants.