The historic “phase one” trade deal with China will boost American ag trade with the country, but it’s not likely to have a major impact on overall U.S. trade at a time when the farm sector here is increasingly dependent on international sales, USDA Chief Economist Robert Johansson tells Agri-Pulse.
It’s too early to tell, but China still may be able to fulfill its promise to buy $80 billion worth of U.S. ag commodities over two years. Even if that does happen amid the coronavirus outbreak in China that threatens to develop into a pandemic, much of the increase will come at the expense of sales elsewhere around the world, Johansson said in an interview.
“I’m not saying trade is not going to grow,” he said in an interview. “Trade is going to grow, but it’s not like we’re going to be plopping down an additional $20 billion or $30 billion on top of what we were selling before. We’re not going to go from $140 billion (in total U.S. world exports) to $160 billion next year because of the 'phase one' deal.”
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China pledged to buy $36.5 billion worth of U.S. farm goods this year. That’s $16.5 billion more than in 2017 — the last year before the trade war erupted and tariffs decimated trade between the two countries. Some changes in trade barriers were announced on Tuesday.
“The size of the box is the question,” Johansson said making a comparison to total possible exports. “Is it getting bigger? Yes, it is, but is it getting bigger by $20 billion? No.”
Still, exports of U.S. farm goods are growing and sales of soybeans and pork to China are the primary reason behind the increase. The latest forecast for U.S. ag exports in fiscal year 2020 is $139.5 billion. That would be a $4 billion increase from 2019, and it’s expected that sales to China will be entirely responsible. The forecast is only a $500 million increase from a November estimate made before the "phase one" deal was signed.
It’s also independent of the "phase one" deal. Much of the increase in exports reflected in the latest USDA forecast is based on China’s skyrocketing pork imports, a response to the outbreak of African swine fever. Chinese hog production last year dropped by 195 million head, and that’s expected to drop another 80 million head this year.
Even with Chinese retaliatory tariffs in place — a whopping 72% — U.S. pork exports to the country rose by 150% in 2019.
The forecast for $139.5 billion in U.S. ag exports — announced last Thursday — was less than generally expected just a few months after the U.S. and China signed the trade agreement that focused primarily on agricultural trade. The next day, President Donald Trump opened the possibility of billions more in trade assistance payments for farmers this year.
“If our formally targeted farmers need additional aid until such time as the trade deals with China, Mexico, Canada and others fully kick in, that aid will be provided by the federal government, paid for out of the massive tariff money coming into the USA!” Trump said in a tweet.
The Trump administration has rolled out aid programs the last two years totaling more than $28 billion in assistance. Ag Secretary Sonny Perdue, who has said a third round of trade assistance in 2020 would not be needed, tried to inject optimism into the situation, despite Trump’s tweet.
“We expect demand to do better,” Perdue said in a statement given to Agri-Pulse. “I hope we can show that a third round is not needed for 2020 — we still believe farmers want trade rather than aid.”
Lawmakers like Rep. Ron Kind, D-Wis., appear to be losing patience.
“Farmers in Wisconsin have been forced to bear the burden of this Administration’s trade war for nearly two years,” Kind said in a letter sent to Perdue on Tuesday. “This deal was supposed to bring them some much-needed relief but instead, Secretary Perdue and the President continue to create more uncertainty.”
But that predicted $4 billion increase for U.S. ag exports is not the full picture for this year. The forecast is for the fiscal year (ending Sept. 30) and the Chinese pledge is for the entire calendar year 2020, leaving three more months for Chinese imports to ramp up.
“Much of what (China) purchases is later in the year, anyway,” said USDA Trade Undersecretary Ted McKinney after the new forecast was released.
The problem is that it’s still unclear how much China will be able to buy, even though the country really needs the supplies, says John Baize, an analyst with the U.S. Soybean Export Council. China was still reeling from the impact of the outbreaks of African swine fever on its pork production when the coronavirus hit the human population.
The country needs a lot of pork, beef and poultry to make up for the protein loss, and a lot of soybeans to help grow its own livestock, but it’s becoming more and more uncertain if the commodities can get there. The situation is severe, as stevedores, truckers and factory workers stay home to avoid getting infected with the coronavirus.
“Quite honestly, with all that’s going on — the coronavirus and everything else — we’re all sort of in the dark,” Baize said. “We don’t know what’s really going to happen. This is a big unknown period.”
Michael Ward, USDA's chief agriculture attache in China, is normally stationed in Beijing but was recalled to Washington after the outbreak hit China. He stressed that the coronavirus is snarling normal trade operations.
“The coronavirus has stalled … China’s crushing plants and feed factories, disrupted domestic supply chains within the country and caused major backups at China’s ports,” Ward said.
The situation may be difficult, says McKinney, and “clearly things have slowed down,” but there’s still plenty of time for trade to get back on track.
And, he pointed out, there has been no move by China to exorcise its right under the "phase one" deal to declare an emergency that prevents it from making the purchases it promised to make.
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