Ag Trade: U.S. and China Reach Initial Deal

Flags of China and the United States of America. Photo: sldesign1

Lingling Wei, Bob Davis, William Mauldin and Josh Zumbrun reported in Friday’s Wall Street Journal that, “President Trump has agreed to a limited trade agreement with Beijing that will roll back existing tariff rates on Chinese goods and cancel new levies set to take effect Sunday as part of a deal to boost Chinese purchases of U.S. farm goods and obtain other concessions, according to people familiar with the matter.

“Mr. Trump met top economic and trade advisers on the agreement for an hour Thursday, and senior administration officials were making calls to tout the outlines of an agreement, the people said.

Michael Pillsbury, an adviser to the president, said he spoke with Mr. Trump, who said the deal calls for China to buy $50 billion worth of agricultural goods in 2020, along with energy and other goods. In exchange the U.S. would reduce the tariff rate on many Chinese imports, which now ranges from 15% to 25%.

Friday’s article explained that, “The Wall Street Journal reported earlier Thursday that the U.S. side has offered to slash existing tariff rates by half on roughly $360 billion in Chinese-made goods, in addition to canceling the tariffs on $156 billion in goods that Mr. Trump had threatened to impose on Sunday. That offer was made to Beijing in the past five days or so.

Should Beijing fail to make the purchases it has agreed to, original tariff rates would be reimposed. Trade experts call that a ‘snapback‘ provision, though the president didn’t use that term, Mr. Pillsbury said.”

The Journal writers added that, “The limited trade pact could help revive U.S. agricultural exports to China. Such sales had collapsed over the past year and a half, with China retaliating against U.S. tariffs by halting farm purchases. U.S. farm exports fell from as much as $25 billion in recent years to below $7 billion in the 12 months through May, according to Commerce Department data.

“Farm exports to China have begun to climb in recent months as the two sides reached a truce, but remain nearly 60% lower than their pre-trade war peak.”

“Oilseeds: World Markets and Trade,” USDA- Foreign Agricultural Service (December 2019). Click Image to Enlarge

Ana Swanson, Alan Rappeport and Keith Bradsher reported on the front page of Friday’s New York Times that, “Mr. Trump is expected to make an official policy announcement on Friday about progress toward a trade deal he initially announced in October. However, both sides have said before that they were on the verge of an agreement, only for the talks to collapse. The text of the agreement has not been finished and it is unclear whether China has agreed to all of the details included in the plan.”

The Times article noted that, “China has been willing to discuss purchases of American agriculture, especially since a disease has devastated its swine population and led to spiraling pork prices. But in previous discussions, Chinese negotiators had pushed back against promising set purchase amounts far into the future, saying such an arrangement could anger its trading partners and violate its commitment to the World Trade Organization to treat all members equally.”

Writing in Friday’s Washington Post, David J. Lynch reported that, “China’s Commerce Ministry, which usually releases news about the trade talks, was notably silent on Friday morning Beijing time. Its media office did not respond to calls and faxes requesting comment.”

Mr. Lynch also pointed out that, “Progress with China comes as the White House is celebrating victory on another front in Trump’s trade wars. This week, House Democrats agreed to support a revised version of a new North American trade deal, which the president had signed last year with Mexico and Canada.”

Eli Stokols and Don Lee, writing in Friday’s Los Angeles Times, reported that, “Trump met in the afternoon with U.S. Trade Representative Robert Lighthizer, who presented the outlines of the partial deal, according to the official. The president approved. There was no confirmation from the Chinese, although officials have spoken more optimistically in recent days of their talks with the U.S.; they are expected to comment on the trade talks overnight and could confirm a deal on Friday.”

“Brazil is racing ahead of the US as the world’s largest soyabean producer, as a trade war and extreme weather take a toll on American agriculture.” (“Brazil set to overtake US as world’s largest soyabean producer,” by Gregory Meyer and Andres Schipani. The Financial Times (December 10. 2019)). Click Image to Enlarge

Meanwhile, Bloomberg’s Michael Hirtzer and Mike Dorning reported on Thursday that, “An initial U.S.-China trade accord includes a promise by Beijing to buy more American agricultural goods. That’s likely to spark relief and questions for farmers and crop traders.

“President Donald Trump signed off on a so-called phase-one trade deal, for which terms have been agreed but the legal text has not yet been finalized, according to people familiar with the matter. An announcement is expected on Friday Washington time.

Farmers and agriculture traders are hungry for more details. The more than yearlong tariff spat between the two nations weighed on commodity prices and upended global crop shipments, benefiting Brazil as an alternative supplier. While grower incomes have been insulated by U.S. government aid, many in the agriculture community have said they’d rather see the return of trade flows into China than continue to be supported by federal payments.

The Bloomberg article noted that, “Market watchers will want to know whether China has committed to a hard value for shipments. U.S. Agriculture Secretary Sonny Perdue said Thursday that Chinese officials told Trump that they would buy $40 billion to $50 billion worth of American farm goods, but were reluctant to commit to contracts. Exactly how much China could buy and over what period are crucial questions.

“Soybean, corn and wheat futures extended rallies Friday on optimism China will substantially increase U.S. agricultural purchases. Soybeans, often viewed as a bellwether for trade talks, hit their highest intraday level in more than three weeks, rising 1.8%. Corn advanced 1.7% and wheat gained 0.8%. Soybean meal in China, used in animal feed, lost 1.4% as more soybean supplies loomed.”

The Bloomberg article added that, “The value of U.S. agricultural exports to China in 2018 was roughly cut in half from the previous year to $9.1 billion, down from $19.5 billion in 2017. For soybeans alone, the value of shipments sank to $3.1 billion in 2018 from $12.2 billion in 2017, according to Department of Agriculture data.”

Later on Friday morning, Keith Bradsher, Alan Rappeport, Ana Swanson and Chris Buckley reported at The New York Times Online that, ” The United States and China have agreed to an initial trade deal that will result in a reduction of tariffs and purchases of American farm goods, marking a significant de-escalation in the 19-month battle that has rattled the world economy.”

The Times article stated that, “The agreement includes a commitment by Beijing to buy more American agriculture products and to strengthen laws protecting foreign companies operating in China, as well as beefing up intellectual property rules and providing more transparency around currency movements. [Wang Shouwen, China’s vice commerce minister] said both sides have agreed to complete legal reviews as quickly as possible and that an official signing was still being worked out.

Some advisers to the White House said the Chinese had agreed to buy $50 billion worth of American farm products next year but China has so far not confirmed that figure. Officials on Friday said that imports of American agriculture products would increase by a ‘considerable margin’ to meet China’s needs for goods like soybean and pork.




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