Trade tensions are escalating again between the United States and China, which has renewed the skepticism about China being able and willing to uphold the phase one deal.
The political tit-for-tat has been going on for weeks now but has centered around President Donald Trump’s accusations that China was to blame for the coronavirus pandemic and that they purposely hid information regarding the spread and number of positive cases in their country.
U.S. farm groups have been fearful the rhetoric would lead to additional tariffs or China walking away from the deal before they have even made a serious effort at major ag purchases.
On June 24, White House Trade Advisor Peter Navarro was quoted in a news report saying the trade pact with China was over. That was quickly followed by a tweet from Trump confirming the deal is “fully intact.” The confusion came on the heels of a seemingly successful meeting between trade officials in Hawaii, where Secretary of State Mike Pompeo reiterated China’s willingness to stick by the agreement and that they would soon be ramping up purchases of U.S. agricultural goods.
However, U.S. Trade Representative Robert Lighthizer testified before Congress that China had purchased only about $10 billion worth of agricultural goods, far shy of the $36.5 billion commitment in the phase one deal. That means fourth quarter buying will be key for China to uphold its promise. Many trade observers had always suspected the sales would be backloaded because of the “market conditions” clause in the agreement. That’s why China bought cheaper Brazilian soybeans during the winter and has been waiting until the fall harvest to buy U.S. products at cheaper prices.
American Soybean Association vice president and Valley Springs, S.D., farmer Kevin Scott admits there has been talk since coronavirus hit China that they would also use the pandemic as a reason to back out of the agreement. There is a natural disaster clause in the agreement in addition to China spelling out that they would make purchases based on “market conditions.”
Scott is trying to stay optimistic China will step up purchases soon, because that increase in demand is still the best hope for a recovery in U.S. ag markets hurt by the pandemic.
“It would be great to be able to have another 50-cents or a dollar on the price of our beans right now so that we could price the production that's coming down the line,” he says.
Scott realizes that may be unrealistic with COVID-19 re-emerging in China.
“Yeah, there needs to be some leeway and if the agreement gets done a half a year late or three-quarters of a year late but yet still is in play, you can't really fault them a lot for that.,” he says.
At the same time, Chinese officials have reiterated their promise.
“We have been told by the Ag Department all along that there are signs that they intend to fulfill their requirements under the deal. So, I think if the economy gets going again maybe they'll at least make an attempt to get there,” says Scott VanderWal, American Farm Bureau vice president and Volga, S.D., farmer.
He says China needs U.S. ag goods, especially as they rebuild their pork reserves. Those stocks were depleted after the country's swine herd was devastated by African Swine Fever, resulting in depopulation of millions of head of hogs. Yet VanderWal says with tensions high, they remain concerned.
“It's certainly a real political environment right now and we just hope agriculture doesn't end up being the victim of it again,” he says.
Recently China banned poultry imports from a Tyson plant in Arkansas due to COVID-19 and then followed up announcing they were banning any grain and meat imports that weren’t certified and guaranteed free of the virus. There is doubt about how exporters will be able to supply this certification, and the World Health Organization guidance states the virus cannot survive in meat products longer than 72 hours.
Trade tensions were again tested June 30, as China approved Hong Kong’s Security Law, a full day earlier than expected. The U.S. has promised sanctions for the Communist Party members who are responsible for this move.
This will further strain relations with China, which just recently said they will be stepping up purchases of U.S. corn, ethanol and soybeans. China in June was an aggressive buyer of soybeans, but mostly for the 2020-21 marketing year, and they have been making token purchases of sorghum, corn, hard red winter wheat and even some ethanol. However, they have yet to make the sizable purchases U.S. farmers and ranchers were expecting when the trade deal was first announced. The question now is, are they waiting to buy when prices get cheaper or will they buy at all?