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US-China US$200 billion trade deal leaves European suppliers feeling left out

US-China US$200 billion trade deal leaves European suppliers feeling left out

China’s commitments under a trade agreement signed with the United States in January have left European firms feeling frozen out of the world’s largest consumer market, observers say.

Under the deal – reached in an effort to put the brakes on a trade war that started in July 2018 – Beijing promised to buy an additional US$200 billion worth of American agricultural products over the next two years.

That pledge was reiterated this week when US Secretary of State Mike Pompeo and Chinese State Councillor Yang Jiechi met in Hawaii to discuss a number of thorny issues between the two countries, according to reports from the US side.

For European firms, who had made some inroads into Chinese markets during the trade war – as Beijing sought alternatives to its usual US suppliers – the phase one deal, as the January agreement is known, came as a body blow.

According to Max Zenglein, chief economist at the Mercator Institute for China Studies in Berlin, said European firms saw the US-China deal as “highly problematic”.

“China’s focus on imports from the US will negatively affect other suppliers,” he said.

Those concerns appear to have been borne out by official Chinese figures.

In 2018, with the trade war under way, Beijing granted approval to 46 meat companies from European Union (EU) countries to export their products to China, more than double the figure for the US.

Last year, as China grappled with a shortage of pork and other meats due to an outbreak of African swine fever, which killed an estimated 60 per cent of its pig herd, the number of EU meat producers granted approval to export more than doubled to 112.

EU sales of agricultural products to China in 2019 rose 38 per cent from the previous year to €15.3 billion (US$17.1 billion).

But then things began to change. In the first 10 months of 2019, Beijing granted no new approvals to American meat exporters, only to give almost 350 of them the go-ahead in November and December.

The trend has continued in 2020, with 1,024 US companies getting the green light to sell to China, compared with just 24 from the EU.

“The phase one deal has meant far less space for European firms to get access to the Chinese market,” said an EU diplomat, who asked not to be named.

“The deal has effectively sucked most of the air from the room when it comes to agricultural deals, and left firms and governments frustrated.”

In the first three months of 2020, China bought more than US$1 billion worth of soybeans from America – one of the world’s biggest suppliers of the crop – and US$691 million worth of US pork.

But even with those increases, Zenglein said it was unlikely China would be able to fulfil its promise to buy an extra US$200 billion worth of American agricultural products over the next two years because of the disruption caused by the Covid-19 pandemic.

The promises made by Yang in Hawaii were most likely designed to appease Donald Trump – who is hoping to win a second term as president in November – he said.

“Given the political importance of agricultural producing states for Trump, it seems highly plausible that this was an attempt by the Chinese leadership to show its willingness to uphold the agreement.”

Meanwhile, European sales of agricultural goods to China are set to take a further hit after officials in Beijing said the new outbreak of Covid-19 in the city was linked to a “European strain” of the coronavirus.

Chinese buyers have halted imports of European salmon after traces of the pathogen were found on cutting boards used to prepare the fish at the Xinfadi wholesale food market where the outbreak was first identified.