An Urban's Rural View

Assessments of the phase one U.S.-China trade deal and its impact on U.S. agriculture have been all over the map. Unsurprisingly, President Donald Trump called the deal "phenomenal." Farmers, he said, will have to buy bigger tractors because the deal "means a lot of business, a tremendous amount of business" for them.

Perhaps equally unsurprisingly the Senate's Democratic leader, Chuck Schumer of New York, dismissed the deal. "He has sold out for a temporary and unreliable promise from China to purchase some soybeans," Schumer said.

Democratic politicians weren't the only skeptics, however. Many doubted the president's assurance that China has committed to buy $50 billion a year in ag products from the U.S. As Brian Kuehl, co-executive director of Farmers for Free Trade, noted, "China has yet to confirm this pledge or provide any details on how they will meet it."

The doubters have a point. Details have indeed been in short supply and some of the details we have are contradictory. Reports sourced to unnamed U.S. officials have put the Chinese commitment at either $32 billion a year or $40 billion a year for the next two years, not $50 billion.

(https://www.washingtonpost.com/…)

(https://www.reuters.com/…)

(https://www.scmp.com/…)

The Chinese confirm they'll buy more from the U.S. but they haven't publicly committed to a dollar figure. They continue to insist their purchases will be market-driven, reflecting their domestic demand and responsive to price signals.

Yet despite these grounds for skepticism, America's hard-pressed farmers and ranchers can and should take heart. Unlike some of the many previous false starts in the negotiations between the two countries, there actually does seem to be a deal this time. And while the president has probably exaggerated the size of China's commitment, maybe even by a lot, the deal will almost certainly represent an improvement for American agriculture over the status quo.

Granted, the status quo is not a high bar, and it's a status quo of Trump's making. After 18 months of trade war, China imported only $9.2 billion in ag products from the U.S. last year. This year's total will likely be only a little higher. That's well down from the peak year 2012 when the comparable figure was nearly $26 billion.

So even if China's ag imports from all sources don't exceed last year's $137 billion, there's plenty of room for an increase in the U.S. market share. African swine fever has forced China to cull more than 100 million pigs, reducing demand for soybeans but increasing the country's need for imported meat. Look for significant increases in Chinese imports of U.S. pork and poultry.

Could China's imports reach Trump's much-touted $50 billion a year? Not likely. But for American farmers and ranchers, even getting back to the $24 billion level of 2017, before the trade war began, would be a big victory. At even $27 billion and certainly at $32 billion or $40 billion, Trump will be trumpeting "highest ever." In fact, the president being who he is, he'll be blowing that horn at well below those numbers.

In previous posts, I have given Trump's premature reports of this deal two but not the normal three stars (https://www.dtnpf.com/…). In light of the latest announcements, I'd give it another half star, but still not the full three.

For one thing, the deal hasn't been signed yet, and unsigned deals between the two countries have been known to fall through. The deal doesn't have to be approved by Congress, which means that even after it's signed the president, or some future president, can always just renounce it.

The Chinese could renege on it, as well, although the administration has made it clear that if that happened, the tariffs it's promising to reduce on Chinese imports would go back up and new tariffs would be imposed on other goods.

Then too, the deal doesn't seem to give the U.S. much more than the Chinese were said to be offering in the middle of 2018. Why, farmers and ranchers might well ask, did we have to endure the last 18 months only to get what we could have gotten painlessly 18 months ago?

Perhaps most significantly, the deal doesn't touch the most serious concerns of American business, like China's massive subsidies to companies in key industries. These concerns, the administration says, will be dealt with in the next phase of the negotiations. Good luck getting the Chinese to give much ground in that phase.

U.S. trade hawks, like presidential adviser Peter Navarro, can't be terribly happy with this deal, then. China's trade hawks, on the other hand, declared victory (https://www.nytimes.com/…). What China gave up -- increased ag purchases -- it planned to do anyway; what it didn't give up was huge. And China got some, though not all, the tariff rollbacks it demanded.

My assessment, then, is that this deal is better than the status quo for agriculture and may, depending on how it all works out, be better than the pre-trade-war past. Whether it's a good deal overall for the U.S. is very much open to question.

Urban Lehner can be reached at urbanize@gmail.com

(CZ)

© Copyright 2019 DTN/The Progressive Farmer. All rights reserved.