Trump’s U.S. Tariff Reductions Could Lead to Chinese Agriculture Import Increase
Last week, Trump and China reached a handshake agreement in which China pledged to make sizable agricultural purchases in exchange for relief on upcoming tariffs. China imported around $20 billion of United States farm goods in 2017, and have already bought 20 million tons of soybeans and 700,000 tons of pork in 2019.
China’s commitment to purchasing more U.S. agricultural products is “phase one” of the trade deal. The deal states that the U.S. will lift its tariffs on Chinese goods and Beijing would then lift its own levies on American agricultural products. The terms of the partial trade agreement also indicate that Chinese spending on U.S. farm goods will reach an annual figure of $40 – $50 billion over the next two years.
In the past, Beijing has granted waivers so that its companies can buy U.S. farm goods without paying Chinese tariffs. Beijing could continue these waivers for a time but waivers are impractical over a two year period and with the estimated volume of $40 – $50 billion.
A Possible End to the Trade War
The United States and China have both expressed a willingness to work towards a final agreement. Additionally, both sides would like a deal to be completed and signed at the Asia-Pacific Economic Cooperation Summit next month in Chile.
China would like to continue discussing the deal as soon as the end of October in order to finalize details, while the U.S. works to formalize the first stage in the next few weeks. If an agreement cannot be reached, new U.S. import levies on Chinese products will begin on December 15.
Agricultural Products that May be Imported
China is considering widening its scope of purchased goods in order to increase imports. Items being considered are:
- Soybeans
- Cereals
- Cotton
- Ethanol
- Fertilizer
- Juice
- Coffee
- Meat
- Machinery
- Lumber
- Pesticides
China could also decide to lift barriers on distillers dried grains and remove a ban on chicken imports. In 2017, Beijing started substantial anti-dumping and anti-subsidy tariffs on U.S. distillers dried grains. These dried grains are a by-product of corn ethanol production that are used in animal feed.
China could resume purchasing distillers dried grains from the top supplier in the trade if they stop the tariff on the goods. This trade was worth almost $2 billion before the Chinese tariffs began. Distillers dried grains trade effectively came to a halt once the Chinese tariffs were in place. In addition, China still has retaliatory tariffs on U.S. products of soybeans, corn, and pork.
The accumulation of these purchases could surpass $40 billion, but as of now, China hasn’t decided on a specific value for the goods. Chinese officials are open to start purchasing more U.S. agricultural products as part of “phase one” of the trade deal. However, some within China do not believe they will reach $40 – $50 billion under the current circumstances.
An Uncertain Future
Investor optimism towards the trade deal between the world’s two largest economies has also waned. It seems both sides are uncertain of the future as U.S. equity futures pared gains on the news and the yen extended an advance.
China and the U.S. and been embroiled in a trade dispute for more than a year, with tariffs in abundance on each side. It does seem that the ultimate goal with current negotiations is to end the trade war and stop all additional tariffs. Coming to such an agreement would benefit China, the U.S., and the rest of the world.
Representatives from the U.S. and China remain in communication, and although both sides appear eager to continue with negotiations, there is no time scheduled between the leaders of both countries to meet.
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