Sino-U.S. Trade Deal: Big Numbers, Few Details, Many Questions For Ag
Although President Trump declared “a very large Phase One Deal with China,” the White House put few agricultural details in writing over the weekend, saying the agreement calls for “substantial purchases” of farm exports, rather than the quadrupling trumpeted by U.S. trade representative Robert Lighthizer. Analysts such as Joe Glauber of IFPRI were dubious that U.S. exports, forecast at $11 billion this year, could leap overnight to the $40-billion-a-year level cited by the administration.
“In terms of agriculture numbers, what we have are specific breakdowns by products and we have a commitment for $40 to $50 billion in sales … just massive numbers,” said Lighthizer on “Meet the Press” Sunday. Lighthizer said the 86-page agreement included removal of agricultural barriers “in many cases.” The nations expect to sign the Phase One agreement in early January and the next stage of negotiations would start at a yet-to-be determined date.
Larger farm exports would be a major element of a target of $200 billion a year in manufacturing, agriculture, services, and energy sales to China, said Lighthizer. “Overall, it’s a minimum of $200 billion. Keep in mind, by the second year, we will just about double exports of goods to China, if this agreement is in place.”
In discussing the Phase One deal, U.S. officials spoke as if farm trade was running at levels seen before the trade war, of around $21 billion a year, so the minimum of $40 billion annually in sales would require an increase of $16 billion or so. The increase would be much larger. On November 25, the USDA forecast sales to China of $11 billion this fiscal year, following $10.1 billion in sales in fiscal 2019.
“[I]t will be very hard to get to the $40 bil (let alone $50 bil) promised,” said Glauber in a series of tweets. “Getting back to 2017 levels is not trivial after the past 2 years of poor exports. Hopefully there are improvements in GMO approvals and other non-tariff issues which will improve future trade prospects.”
Soybeans used to account for two thirds of U.S. farm exports to China but an epidemic of African swine fever killed millions of hogs, so China has less need in the near term for soybeans, used in livestock rations. In addition, Brazil is the dominant soybean supplier. “So U.S. and Brazil are battling over a smaller pie,” tweeted Glauber.
China might be interested in corn, wheat, and rice from the U.S. but it has a system of tariff-rate quotas that limit imports. Other options for imports are cotton, dairy, and meat, such as pork. According to U.S. officials, China would try to purchase an additional $5 billion a year above the minimum level of ag exports.
A White House fact sheet on the agreement did not list dollar goals for sales. “China has agreed to make substantial purchases of American manufacturing goods, agricultural products, energy products, and services, marking a monumental win for American farmers and businesses,” it said.
“Without doubt, to implement the agreement, our imports of American agricultural goods will increase significantly,” said China’s vice minister of agriculture, Han Jun, on Friday, according to Bloomberg. Chinese officials did not assign a dollar value to the increased imports.
U.S. farm exports are forecast for $39 billion this year, up from $135.5 billion in fiscal 2019. The $16-billion increase mentioned by the White House would mean a nearly 12% increase in shipments. The largest increase in recent years was 8%, or $10.6 billion, in fiscal 2017 during a recovery from the collapse of the commodity boom in 2014. Exports fell $7.9 billion, or 5.5%, in fiscal 2019 as a result of the trade war and lower commodity prices.
“America’s farmers and ranchers are eager to get back to business globally,” said president Zippy Duvall of the American Farm Bureau Federation. “We are eager to learn the details of China’s commitment to purchase more agricultural products … We encourage the administration to continue building on today’s announced progress and aggressively pursue a full trade agreement with China and other partners around the world.”
Economist Scott Irwin of the University of Illinois said on social media that “wait and see is the proper response at this point. Until there is something in writing from the Chinese, I am not willing to assume much. But still, at least the trend lines on Chinese ag imports should begin to at least trend upward.”
Agriculture Secretary Sonny Perdue said last week that he expects to see in January the release of the final tranche of $3.6 billion in Trump tariff payments for 2019 crops and livestock.
The White House fact sheet on the Phase One agreement is available here.