In the middle of January, President Donald Trump and Chinese Vice Premier Liu He signed a “phase one” trade agreement between the United States and China in a ceremony in the East Room of the White House. This is the first step toward resolving a trade war that has been very burdensome to agriculture. The trade war that the president said would be easy has been extremely difficult and farmers and ranchers paid the price.
In the deal, the Chinese have committed to buy $40 to $50 billion of agricultural products from the United States in each of the next two years. Exactly what commodities China will buy to reach these aggressive targets has not been disclosed. Hopefully, this will create the demand we need to move our markets up. In 2017, China purchased nearly $24 billion in U.S. agricultural products, so the agreement will be a significant increase, if China truly follows through.
Keep in mind, U.S. agricultural exports to China have fallen from $21.4 billion in 2016, the year before President Trump took office, to $9.2 billion in 2018, the last full year of publicly available trade data. China’s purchases of U.S. soybeans, which have long been the top overall U.S. export to China, fell from $14.2 to $3.1 billion over the same time period.
The purchase agreement is great news, but it does not cover lost sales over the last two years. It will take time to regain our market share and rebuild our reputation as a reliable trading partner. Plus, the “excess supply in the bin” will limit markets’ upward potential for as long as five years, according to some economists.
We hope this first phase of the deal is real and not just rhetoric. Until vessels carrying U.S. agricultural products are landing in Chinese ports, I will remain slightly suspicious. Here’s why:
• China continues to make significant forward purchases of Brazilian soybeans, including about a dozen bulk vessels the week of Jan. 8 or about 800,000 tons. With Brazil representing a more reliable soybean market, we are left wondering whether Chinese buyers will have an appetite for vast supplies of U.S. soybeans once the deal is done.
• There appears to be no enforcement language in the agreement. Without enforcement and the support of the rest of the world, we will struggle to hold China accountable. Since many of the issues said to be included in the deal have been the subject of bilateral discussions between the United States and China for quite some time, what specific obligations exist from Beijing to finally follow through with these commitments? How will the enforcement and dispute resolution mechanism in the agreement prevent future escalation of trade tensions?
• The U.S. agreed to remove China as a currency manipulator. China will follow through with a pledge to refrain from competitive currency devaluations (part of its commitment to the G20) or use its exchange rate for trade advantages. The United States has dropped its findings that China is a currency manipulator. This issue has not been completely resolved.
We all hope this is the beginning of the end of the trade war. But much work remains to restore demand for U.S. farm products. As the lingering effects of the trade war continue to drag on commodity prices, the type of support offered through the Market Facilitation Program will be essential to “making farmers whole.”
Be assured, your organization is closely monitoring this issue and will lead the charge for securing the support you need to weather the economic storm.
– NDFU President Mark Watne