China to buy more US Agro products
February 24, 2019 | Expert Insights
China has proposed that it could buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn and wheat as part of a possible trade deal being negotiated by the two countries.
Background
Relations between the US and China have generally been stable with some periods of open conflict, most notably during the Korean War and the Vietnam War. Currently, China and the United States have mutual political, economic, and security interests, including but not limited to the proliferation of nuclear weapons, although there are unresolved concerns relating to the role of democracy in government in China and human rights in both respective countries. China is the largest foreign creditor of the United States.
Beginning in 2009, the US and China agreed to hold regular high-level talks about economic issues and other mutual concerns by establishing the Strategic Economic Dialogue, which meets biannually. Economic nationalism seems to be rising in both countries, a point that the leaders of the two delegations noted in their opening presentations.
China and the United States are engaged in a trade war as each country continues to dispute tariffs placed on goods traded between them. US President Donald Trump had promised in his presidential campaign to fix China's "long-time abuse of the broken international system and unfair practices".
Analysis
China’s offer to buy the extra farm produce would be part of the memoranda of understanding under discussion by U.S. and Chinese negotiators in Washington, according to the people, who asked not to be identified because the plans are confidential. The purchases would be on top of pre-trade war levels and continue for the period covered by the memoranda, they said.
U.S. Agriculture Secretary Sonny Perdue said it was “premature” to comment on what or how much China might buy as part of a trade deal. “I don’t want to raise expectations,” he told reporters attending the department’s annual outlook conference in Washington on Thursday. “If we reach an agreement on structural reforms we can recover markets very, very quickly.”
As part of the talks, officials are also planning to discuss removing anti-dumping and anti-subsidy tariffs on distillers dried grains, a by-product of corn ethanol production that’s used in animal feed, officials said earlier. Soybeans, corn and wheat futures climbed in Chicago in response to the news, with corn ending the day 1.3 percent higher.
“China will say what needs to be said to get a deal, but the key component will be in the verification and enforcement,” Arlan Suderman, chief commodities economist for INTL FCStone, said in a note. “I remain skeptical that such a deal will ‘fix’ the soybean balance sheet, without specific very large purchase quotas that I do not expect. However, it would not require very large purchase of corn, ethanol and DDGS to significantly improve the corn balance sheet.”
China has repeatedly offered to increase purchases of agricultural and energy products to shrink the U.S. trade deficit. Since a tariff truce agreed in December, it has resumed imports of some farm goods including soybeans and President Donald Trump this week said “a lot of” corn would be next on Beijing’s shopping list.
The MoUs under discussion is also said to cover areas including non-tariff barriers, services, technology transfer and intellectual property. The enforcement mechanism remains unclear, but would likely be a threat that tariffs would be reimposed if conditions aren’t met, a person said earlier.
Gao Feng, a spokesman for the ministry, said at a briefing earlier that he had no details regarding any MoU being discussed with the U.S. He also said that he couldn’t offer any information on the results of the trade talks until the current round ends.
Assessment
Our assessment is that China’s decision to purchase more US agro products will signal a mutual de-escalation of the ongoing trade war. China is the largest consumer of US soybeans and we believe that the memorandum to be signed will ensure a short term reprieve from the trade war.
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