A new trade deal reached between the United States and China might significantly increase China’s imports of American agricultural products, including soybeans.
A pause in the ongoing trade war between the two countries might seem like good news to farmers, but the planned annual increase in China’s imports of U.S. agricultural goods is likely higher than either country can deliver on, said Ian Sheldon, an agricultural economist and professor with The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES).
Under the U.S.-China trade deal, which is expected to be finalized Jan. 15, China has committed to buying at least $40 billion worth of U.S. agricultural goods by the end of 2020. China purchased $24 billion in U.S. agricultural goods in 2017 before the trade war began. So the deal is calling for a $16 billion annual increase upon the 2017 total.
“How can a country virtually double imports in a year?” Sheldon asked.
The only way China can likely do that is if the Chinese government pressures its state-owned trading agencies to commit to that level of purchases of U.S. agricultural goods, he said.
“Most farmers will tell you they want to be able to compete on the world market,” Sheldon said. “If the Chinese commit to importing more than they would have at world prices, then this is an artificial increase in market access for the United States.’’
Other countries that export goods to China, including Brazil, could file disputes with the World Trade Organization, alleging that the deal is discriminatory.
The terms of the new trade deal also likely will be challenging for the United States to meet, said Sheldon, who works in the Department of Agricultural, Environmental, and Development Economics within CFAES. Production of agricultural goods will have to rise significantly to supply China with the promised level of imports, he said.
The new trade deal with China is one of two recent U.S. trade deals that have been reached. Dairy farmers, in particular, are expected to gain from increased exports as part of the trade agreement the United States, Canada, and Mexico reached in December 2019. The United States-Mexico-Canada Agreement (USMCA) replaces the North American Free Trade Agreement that went into effect in 1994.
Trade tensions between the United States and China were ratcheted up in July 2018 when the United States imposed the first in a series of tariff hikes on imports from China. That led to China retaliating with its own set of tariffs on imports of U.S. goods. For Ohio farmers, a damaging effect of the trade war has been a steep drop in China’s demand for soybeans, which are Ohio’s top agricultural export.
The new trade deal might stop the escalation in the trade war, but it does not eliminate tariffs. Consumers in China and the United States will still pay 20% on average in import tariffs.
A better solution to the trade war with China would be to return to the relatively low tariff levels that were present on both U.S. and Chinese imports before the trade war with China started, Sheldon said.
“It’s good that the agreement means we’re not escalating the trade war,” Sheldon said. “But I’m not convinced that either the United States or China can meet some of the commitments—at least not in the time frame they’ve set up.”