The U.S. Agricultural Trade Deficit With China

Due to sharply falling exports and rapidly rising imports, our small agricultural trade surplus with China turned back into a trade deficit in 1999. In fact, the United States registered a trade deficit with China last year in two-thirds of all agriculture commodity groups, including: fruits and nuts, tobacco, cotton, seafood and vegetables. As a result, U.S. agricultural exports to China in 1999 were 33 percent less than in 1989 while U.S. imports of agricultural goods from China were up 96 percent during this same period.

Cotton: Our cotton trade balance with China took a surprising turn last year: Our 1998 surplus of $118 million disappeared and actually turned into a trade deficit of $12 million in 1999. We imported cotton from China for the first time in 1999, and those imports dwarfed our exports by a factor of almost 2-to-1.

Tobacco: In 1999, we had a $3 million trade deficit with China in tobacco and tobacco products; this is down from the $6 million tobacco trade surplus we had with China in 1990. Our tobacco imports from China more than tripled between 1995 and 1999. In addition, American tobacco exporters are explicitly excluded from the concessions China made to other U.S. exporters regarding trading and distribution rights.

Peanuts: U.S. exports of peanuts to China have fallen in the past few years. While we exported $60,000 worth of peanuts to China in 1994, the amount had dropped to $14,000 by 1998 and crashed at zero in 1999. We actually imported peanuts from China for the first time in 1998. Furthermore, the 1999 U.S.-China agreement contains absolutely no tariff concessions for peanuts.

Wheat: Our wheat and durum wheat exports to China fell more than 90 percent between 1995 and 1999, from $506,000 to $33,000. In addition, our 1995 trade surplus in buckwheat has since become a trade deficit of about equal size. Wheat, like cotton, will be imported through China's tariff-rate quota system, under which a low tariff will be applied to wheat imports up to a certain quantity, or quota. But under the 1999 U.S.-China agreement, China indefinitely reserved the right to import and distribute 90 percent of the wheat quota exclusively through its state trading enterprises. State control of wheat imports will be nearly absolute and will distort any benefit that reduced tariffs may have given to American wheat farmers.

Apples: Our exports of fresh apples to China fell 79 percent from 1995 to 1999. Meanwhile, we imported two times more dried apples (in dollar value) from China in 1999 than we exported in fresh apples.

Proponents' Claims About PNTR

Proponents of granting permanent normal trade relations (PNTR) status to China argue that China is "the most important growth market for U.S. agricultural exports" and that the WTO "will create huge opportunities for U.S. agriculture." These individuals also highlight the fact that the 1999 U.S.-China bilateral agreement requires China to reduce the average tariff on all agricultural products from 22 percent to 17.5 percent by January 2004 and from 31 percent to 14 percent for agricultural products deemed important to the United States; establish tariff-rate quotas for wheat, rice, corn, cotton and soybean oil; and comply with WTO rules on trading and distribution rights and on sanitary and phytosanitary barriers.

The Truth About U.S.-China Agricultural Trade

(1) China's vast domestic oversupply spells trouble for American farmers. China continues to produce more agricultural products than it consumes year after year, and its global surplus in agricultural trade neared $4 billion in 1999. This agricultural glut will probably only grow once China has access to U.S. capital and technology to improve its food distribution systems ("The U.S., China, and the WTO: More False Promises, Debt, and Unnecessary Instability," Dr. Charles McMillion, March 2000). Not only is our agricultural trade deficit with China more likely to increase rather than decrease after WTO accession, but China's agricultural products will squeeze U.S. companies out of foreign markets as well. PNTR will only lock in China's access to our own market under these conditions.

(2) Key elements of the 1999 U.S.-China Agreement have still not been negotiated. The General Accounting Office reports that agreement on "significant issues," including rules on subsidies, technical standards and implementation, is missing from the latest agreement. Discussions on sanitary and phytosanitary barriers to tobacco, plum and potato imports still are not finished, and tariff rates for sugar and wool, among other commodities, have not been negotiated. Even though these issues are vitally important for American farmers, there are no plans to negotiate on them until after the upcoming vote on PNTR. How can anyone expect further concessions on agriculture from the Chinese government if PNTR passes? With hundreds of millions of un- and underemployed workers in China, and an average disposable rural income below $1 a day, the Chinese government's first priority will be to continue subsidizing its own farmers, protecting domestic producers with trade barriers and flooding third-country markets with their agricultural surplus. If PNTR is enacted, China will have absolutely no incentive to make concessions to the United States on subsidies or any other trade matters.

(3) A devaluation of China's currency will wipe out the benefits of tariff concessions. A modest devaluation of China's currency will make the benefits of China's promised tariff cuts disappear in a flash, and bring China's domestic prices lower than prevailing prices even after the tariff cuts are fully in place. China devalued its currency by 50 percent on Jan. 1, 1994, and the Chinese government would not hesitate to devalue again in order to protect its agricultural sector. The Chinese government has a strong interest in preventing more rural unemployment and in stemming the tide of rural-to-urban migration (a "floating population" estimated at about 100 million). Devaluation would make China's products much cheaper than prevailing world commodity prices, thus propping up Chinese farmers at the expense of farmers in the United States.

(4) China has historically failed to follow through on its trade agreements with the United States. Since 1992, China has entered into four bilateral agreements with the United States in which China has agreed to give U.S. businesses better access to its markets and not to discriminate against U.S. products. But according to annual reports by the U.S. Trade Representative, China has repeatedly violated all four of these agreements. Prospects for compliance with the latest agreement do not look any better. On Jan. 7, 2000, the South China Morning Post quoted China trade envoy Long Yongtu as saying, "In its agreement with the U.S., Beijing only conceded a theoretical opportunity for the export of grain."

(5) All of the tariff concessions made by China in the 1999 U.S.-China bilateral agreement will still be binding under the 1979 bilateral agreement even if PNTR is not enacted. In a recent letter to Congress, U.S. Trade Representative Charlene Barshefsky stated, "Among the rights available under Article II of the 1979 Agreement is the right to tariff reductions that China will make" with other countries through the WTO.