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China-US trade deal - 'highly unsatisfying' or 'meaningfully' beneficial?

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China and the US, amid a tariff war since 2018, have, at last, signed a phase one deal to return some kind of normalisation to trade.

 

Donald Trump, US president, called the deal a “momentous” step, while Liu He, China’s vice-premier who signed the agreement on Beijing’s behalf, said the deal was “extensive” and pledged to “strictly honour the agreement”.

 

But what do farmers and investors think?

 

Is the agreement - the text of which can be found by clicking here - a “highly unsatisfying outcome”, or one that “will bring about meaningful benefits for American food and agriculture”?

 

Agrimoney lists below reaction from major trade and market commentators.

 

 

 

Agritel

Traders did not hide their scepticism after signing the first phase of the agreement between the USA and China.

 

Indeed, this agreement means a purchase at least an additional $12.5bn worth of agricultural products in 2020, above the 2017 baseline, and an additional $19.5bn in 2021.

 

This is less than expected, but especially China has specified that the pace of these purchases will depend on market conditions.

 

It should be translated that Chinese imports of American agricultural products will also depend on the price difference with their competitors.

 

 

 

American Soybean Association

The soybean industry… is hopeful the agreement will lead to additional measures that restore open trade between the two countries, including a negotiated solution in the next phase that removes tariffs on American soybeans shipped to China.

 

We have long supported changes to how China conducts business with the world, in agriculture and other industries.

 

Changes outlined in the phase one deal are encouraging: increased agriculture purchases; a more predictable, efficient, science- and risk-based regulatory process for evaluation and authorisation of agricultural biotechnology products; improvements to sanitary and phytosanitary measures; and intellectual property protection for agriculture, among others.

 

We are very pleased to see true progress on the regulatory process for ag biotech products, sanitary and phytosanitary measures, and other big points of concern.

 

Yet, as an industry, we have a lingering unease regarding the tariff on US beans, which was not addressed in this deal.

 

China needs to take action, and, as a goodwill gesture, offer to remove its retaliatory tax on our soybeans.

 

 

 

Archer Daniels Midland

ADM strongly supports the phase one US-China trade agreement, which will bring about meaningful benefits for American food and agriculture by breaking down barriers and addressing systemic issues that have previously impeded full access to the Chinese market.

 

The provisions included in this agreement will benefit farmers, ranchers and rural communities not just in the immediate future, but for years to come.

 

 

 

Commerzbank

There is considerable scepticism about whether China will in fact buy the quantities of US agriculturals that it has promised to in the trade agreement.

 

Chinese representatives have pointed out for example that the purchases would be based on market conditions.

 

If market conditions mean that purchases in the US do not make sense – for instance because US prices are too high by international standards – the purchases will not be made, in other words.

 

What is more, the tariffs on many key US agriculturals will be remaining in place for the time being, which likewise argues against any significantly higher Chinese purchases unless China relaxes these tariffs.

 

Even if China were to buy the agreed quantities, this inevitably begs the question as to whether it even needs such large quantities of US agriculturals.

 

Ultimately, China would thus risk seeing its market massively oversupplied, which would push domestic prices through the floor and ruin the country’s agricultural sector. China will hardly allow this to happen.

 

 

 

Commonwealth Bank of Australia

Many find that [deal] a highly unsatisfying outcome. For agri commodities, the disappointment with the deal, is primarily about the lack of details.

 

Soybean prices fell as US China trade deal became a fact rather than a rumour.

 

Soybeans is one market where there is disappointment that China has no public binding commitment to purchase x million tonne of them from the US.

 

We suspect the market will get over this issue. But it will be waiting to see if China indeed steps up soybean purchases from the US.

 

Cotton is another market where there is disappointment that China has no binding commitment to purchase x million bales of cotton from the US.

 

 

 

Michelle Erickson-Jones, Farmers for Free Trade

While phase one makes incremental progress, it remains to be seen whether it will deliver any meaningful relief for farmers like me.

 

This deal does not end retaliatory tariffs on American farm exports, makes American farmers increasingly reliant on Chinese state-controlled purchases and doesn’t address the big structural changes the trade war was predicated on achieving.

 

The promises of lofty purchases are encouraging but farmers like me will believe it when we see it.

 

In the months ahead… we will see whether phase one takes steps to dig out from the hole the trade war created or whether like previous ag purchase promises it is all talk.

 

In the meantime, the [Trump] Administration should waste no time in returning to the negotiating table and reaching an agreement that ends the trade war for good.

 

 

 

Kevin Ross, president, National Corn Growers Association

Signing the phase one agreement with China is a step in the right direction to resolving the trade dispute with China and restoring the trading relationship between our two countries.

 

China holds tremendous opportunity for American corn, ethanol and DDGs, and the National Corn Growers Association looks forward to learning further details of what phase one will mean for these products.

 

As more specifics become available, we will closely monitor implementation to ensure that the commitments are upheld and that US corn farmers resume trading with Chinese customers.

 

NCGA urges the [Trump] Administration to quickly commence phase two negotiations and work to resolve retaliatory tariffs.”

 

 

 

National Milk Producers Federation, US Dairy Export Council

The phase one trade agreement with China makes important advances on nontariff issues harming US dairy trade.

 

While promises of additional Chinese purchases of US agricultural products in the next two years are encouraging, the benefits for the dairy industry remain unclear.

 

Given that China’s retaliatory tariffs remain a significant impediment to US dairy sales in China, the US Dairy Export Council (USDEC) and National Milk Producers Federation (NMPF) stress that work with China is not complete until the retaliatory tariffs against all US dairy exports are fully lifted.

 

Left to be fully resolved is how China will fulfil its commitment to purchase large quantities of US agriculture products, including dairy.

 

 

Richard Feltes, RJ O’Brien

 

[Ag markets have retreated] over concerns on perceived “loopholes” in US-China phase one.

 

While these concerns are valid, sceptics cannot deny the reality that the US-China trade relationship today is on a better footing than six months ago and that even a return to China’s 2017 level of US soy purchases would be a positive for the soybean market.

 

 

Louis Rose, Rose Commodity Group

Wednesday’s market action looked like a classic “buy the rumour, sell the fact” scenario.

 

Losses could be rooted in the vague detail surrounding the agreement – only $30bn-40bn of the $200bn in agreed to purchases are for the agricultural sector, and such purchases are dependent on “market conditions” – whatever that means.

 

 

 

Dan Halstrom, chief executive, US Meat Export Federation

For the US pork and beef industries to expand their business in China, the world’s largest and fastest-growing destination for imported red meat, it is critically important that China follows international standards for pork and beef trade.

 

The phase one trade agreement lays important groundwork toward this goal, and USMEF thanks the Trump administration for addressing the barriers that have hampered US pork and beef exports to China for many years.

 

Last year China’s red meat imports exceeded $14bn, a 65% increase from 2018.

 

The US industry looks forward to capturing a greater share of this rapidly growing market.

 

 

 

US Wheat Associates, National Association of Wheat Growers

Chinese imports of US soft white, hard red spring and hard red winter wheat classes were trending up before abruptly ending when China implemented retaliatory tariffs on US wheat and other agricultural commodities in March 2018.

 

Even though China has huge domestic wheat stocks, they were buying more US wheat because they needed it to meet growing demand for higher quality wheat foods.

 

Adding to the optimism is China’s separate agreement to work toward filling its 9.6m-tonne reduced tariff rate quota for wheat imports

 

[We] are especially pleased that the agreement contains structural changes to how US exporters access the Chinese market.

 

US negotiators should be commended for seeing the opportunity to build on our wins at the WTO against China’s tariff rate quota administration and agricultural subsidy policies by including provisions on administration and transparency of policies.

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