By Shingo Ito

Almost two years have passed since the
US government's announcement in March 2018 of sanctions against
China under Section 301 of the US Trade Act of 1974. Repeated
sanctions and retaliations by both the United States and China in the
wake of that announcement led to a US-China trade war that is
affecting the daily lives of ordinary people, as exemplified by the
soaring pork price.

In mid-December 2019, a branch of
Zhejiang Linhai Rural Commercial Bank initiated a scheme called "Free
pork in return for deposits", which became a hot topic in the news.
According to Dushi Kuaibao (City Daily), individuals who deposit RMB10,000 or more into a three-month term deposit account could win a
cut of pork. Most cuts weighed around 500 grams, while others weighed
up to 1.5 or even 2.5 kilos. While it is not known just how many term
deposits have been collected, a bank clerk said that the number was
not insignificant.

The number of deposits made out of a
desire for pork is rising about as fast as the price of pork itself.
The Pork Index included in the Consumer Price Index (CPI) has risen
from a notional 100 in January 2018 to 204 as of November 2019. Pork
is estimated to account for around 2% of the CPI, with a doubling of
the pork price resulting in a 4.5% year-on-year rate of increase in
consumer prices for November 2019. Rising inflation, which has been
high since January 2012, has weakened the purchasing power of the
general public, pushing down real deposit interest rates to below
zero.

The soaring pork price is largely
attributable to the spread of African swine fever. However, any
decline in domestic supply can be addressed by increasing imports
from overseas in addition to releasing pork from government
stockpiles. In fact, the Chinese government has been doing just that,
but the US-China trade war has hindered imports from overseas.

In April 2018, as part of the US.-China
trade war, the Chinese government began imposing additional tariffs
on US pork, resulting in a dramatic decrease in imports of US pork
into China. However, when the pork price soared due to the spread of
African swine fever, Chinese imports of US pork rose suddenly from
May 2019. In October 2019 the volume of US pork imports increased
34-fold year-on-year (dollar-denominated), after the Chinese
government exempted a certain amount of US pork from additional
tariffs. This measure was taken because of the considerable adverse
effects on the livelihoods of the Chinese people, as described above.
Pig farmers in the United States were not the only casualties.

The pork price has not yet come down
sufficiently. At this time of year, demand for pork in China will
increase because of the Lunar New Year celebrations. In order to
reduce the pork price as much as possible by then, in addition to the
measure described above the Chinese government decided to voluntarily
reduce the tariff rate for pork on January 1, 2020 (on a most-favored
nation treatment basis).

In this situation, implementation of
phase one of the US-China agreement is likely to contribute to some
degree to a lowering of the pork price. According to an announcement
by the United States, China has promised to import its pork and other
agricultural products to the value of 400–500 billion dollars. At a
press conference on December 13, China too predicted that imports
from the US of pork and other products that are in short supply in
China will increase as a result of the latest US-China agreement,
assuming that market principles and WTO rules are observed, US supply
capacity is ensured, quality is guaranteed, and price competitiveness
is ensured.

However, the term "phase one" is a
clear indication that there are still many points of contention
between the United States and China. The US government is calling on
China to rectify its market-distorting practices such as protecting
and providing industrial subsidies to its state-owned enterprises,
but this is not included in the latest agreement. Furthermore, the US
government has announced that it will regularly monitor the Chinese
government's implementation of the agreement and in the event of
its failure to abide by its obligations, may impose unilateral
sanctions on China. Were the US government to take such measures, the
Chinese government would have no choice but to squeeze imports of US
agricultural and other products. If US farmers lack confidence that
US-China trade will not be disrupted by political influence, they may
hesitate to increase pork production.

In addition, the Chinese government is
becoming more cautious about the risk that the US-China trade war
will have on employment in China, although it is difficult to affirm
the magnitude of that risk statistically. In a document issued on
December 24, 2019, the State Council of the People's Republic of
China laid out measures to stabilize China's job situation, such as
encouraging enterprises to move to the country's middle, western,
and northeastern regions, expanding sales channels in the domestic
market, and further increasing domestic demand. This indicates
concerns regarding the current or potential impact of the offshoring
of companies and US sanctions against China on employment.

There is growing recognition that the
US-China trade war is part of the competition between the two nations
for supremacy in the Asia-Pacific region. At the same time, the case
of the soaring pork price described above clearly shows that if trade
stability based on marketplace principles and mutual complementarity
is compromised, people's livelihoods in both countries will be
impacted. Where will the United States and China draw the line
between intensifying fierce competition and maintaining mutual
complementarity? The answer could have a major impact on public
livelihoods not only in the United States and China, but worldwide.
There will be a need for countries other than the United States and
China to discuss in greater depth the formulation of new
international rules on the relationship between security and trade.

(Shingo Ito is Senior Economist at the
Institute for International Economic Studies.)