China, US Announce Trade Deal 12/13 10:42
Phase One of US-China Agreement Includes Large Purchases of Farm Goods,
China and the U.S. agreed to a preliminary deal on trade that will roll back
tariffs on Chinese imports and increase agricultural sales, although the
precise amount and time frame wasn't specified.
By Katie Dehlinger
DTN Farm Business Editor
MOUNT JULIET, Tenn. (DTN) -- China and the U.S. reached a preliminary
agreement on the first phase of a trade deal that includes increased purchases
of U.S. agricultural products, although the amount wasn't specified.
The deal, which still needs to go through a legal review before it's signed
into place, prevents a new tranche of tariffs from going into effect on Sunday.
The 25% tariffs on approximately $250 billion of Chinese imports will remain,
while a 15% tariff on $120 billion of imports will be cut in half, to 7.5%.
Chinese officials said the U.S. would remove tariffs in stages, but offered
no further details.
President Donald Trump and other trade officials said the deal requires
structural reforms and other changes to China's economic and trade regime in
the areas of intellectual property, technology transfer, agriculture, financial
services, and currency and foreign exchange.
"We will begin negotiations on the Phase Two Deal immediately, rather than
waiting until after the 2020 Election," President Donald Trump tweeted Friday
morning. "This is an amazing deal for all."
While the president and others have previously said China could commit to
buying $40 billion to $50 billion of U.S. ag products, the Chinese have balked
at committing to a dollar figure, instead saying the purchases needs to be
based on domestic demand, which is under duress at the moment due to the
outbreak of African swine fever.
According to the South China Morning Post, which is often viewed as a source
of official news from Beijing, China purchased $137 billion worth of
agricultural goods from all origins in 2018. The U.S. has never surpassed $30
billion of that total, coming closest in 2012. Last year, U.S. sales totaled
only $9.2 billion as tariffs weighed on trade.
DTN Lead Analyst Todd Hultman said there's a lot still unknown about the
deal announced Friday morning, and it's still possible something could fall
through before the deal is signed.
"My main concern continues to be that China is taking their shopping list of
U.S. goods already needed and is using that to negotiate lower tariffs,"
Hultman said. "It still looks like they are not willing to commit to $50
billion of U.S. ag purchases -- all in 2020 -- a much larger number than their
typical bill. If they stay with the rumored $50 billion commitment, they will
likely negotiate a longer time frame."
There is room for soybean prices to respond, with USDA's ending stocks
estimate suggesting soybeans are currently trading about 50 cents per bushel
below where they should. Response to the phase one news could boost prices as
much as 30 to 40 cents.
"Given the conflicting trade rhetoric of the past 17 months of negotiating,
it would be understandable if traders want to wait for the details before they
celebrate too much," he said. "In the bigger picture, we can't celebrate too
much, knowing that China still holds heavy tariffs on U.S. soybeans and pork,
only waived at their discretion. Lest we forget, Brazil is on track to grow 4.5
billion bushels of soybeans in early 2020, much of it financed and encouraged
by China's tariff on U.S. soybeans."
American Farm Bureau Federation president Zippy Duvall said the announcement
is a step toward resolving the trade battle and restoring U.S. competitiveness.
"America's farmers and ranchers are eager to get back to business globally,"
Duvall stated in a press release. "China went from the second-largest market
for U.S. agricultural products to the fifth-largest since the trade war began.
Reopening the door to trade with China and others is key to helping farmers and
ranchers get back on their feet. Farmers would much rather farm for the
marketplace and not have to rely on government trade aid, so today's news is
On Thursday, Agriculture Secretary Sonny Perdue said the third and final
round of Market Facilitation Program payments for 2019 could be distributed in
January, pending approval from the White House Office of Management and Budget.
He also told farmers he wasn't going to make any commitments about continuing
the program in 2020, urging them to "look at markets every year, make their
planting decisions as they would, not expecting anything. I certainly don't
want our farming community ... expecting an entitlement to Market Facilitation
Programs on an annual basis." You can find more on Perdue's remarks, here:
National Cattlemen's Beef Association CEO Colin Woodall said that while the
industry is still waiting to learn more about the details, they're optimistic
that this is the first step toward long lasting relief for farmers and
"While tariffs grab most of the headlines, China's unjustifiable non-tariff
barriers and restrictions on science-based production technologies must be
addressed so that Chinese consumers can enjoy the same high-quality, safe and
sustainably-produced U.S. beef that Americans have enjoyed for decades. We
encourage the Trump Administration to keep working with China to establish
meaningful market access and rules of trade based on market demand and science,
most importantly. This is an important step forward and something that both
countries must build on for our mutual prosperity."
The wheat industry also praised the news, saying they hoped an agreement
would allow the industry to take advantage of beneficial revisions to the
country's tariff rate quotas (TRQ) that were completed earlier this year. China
agreed to expand its reduced tariff TRQ for wheat imports to 9.6 million metric
tons, significantly above the 1.65 mmt of wheat the U.S. sold China in 2016-17.
"We also believe that China's flour millers and growing baking industry would
welcome the opportunity to purchase high-quality U.S. wheat classes again," a
joint press release from the National Association of Wheat Growers and U.S.
Wheat Associates stated.
The lack of public details about the deal did not go unnoticed. Brian Kuehl,
co-executive director of Farmers For Free Trade, said while any relief is
welcome, one-time purchase agreements are not a substitute for sustained market
"Our hope is that this is not another empty political promise to farmers.
Since the trade war began, farmers have shouldered an enormous economic burden
and repeatedly been promised deals that have not materialized. We appreciate
that this agreement reduces the percentage of a portion of overall tariffs and
focuses on commitments from China to American farmers. However, considering the
vast amount of damage done to the ag economy, the U.S. and China need to get
back to the negotiating table immediately to come to a comprehensive agreement
that provides concrete relief now."
Katie Dehlinger can be reached at Katie.firstname.lastname@example.org
Follow her on Twitter @KatieD_DTN
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