OMAHA (DTN) — In one of the biggest political victories of his presidency, President Donald Trump on Wednesday signed a phase one deal with China that is expected to drive significantly higher U.S. ag exports to that country.
The president held a signing event Wednesday with Chinese Vice Premier Liu He in which Trump highlighted reasons he pushed for a tougher policy stance with China. Trump said the U.S. in recent decades had driven up trillions in trade deficits and that helped motivate Trump to run for president.
“China fully understands there has to be a certain reciprocity. There has to be. It can’t continue like this,” Trump said, later adding, “This is an unbelievable deal for both countries and hopefully it can lead to a more stable world and peace.”
Under the deal, agricultural sales to China could reach $50 billion a year, the president said. Still, Trump’s team stated China agreed to $40 billion in ag purchases for each of the next two years. Trump said the initial talks called for $20 billion in ag sales, but he demanded that be more than doubled, even though his trade negotiators did not think farmers could meet that demand volume. “I said ‘I love our farmers. Let them tell me they can’t do it.’ I said. ‘Tell them to go out and buy a larger tractor. Buy a little more land.’ But I have no doubt they will be able to do it,” Trump said at the signing ceremony.
Agricultural exports to China reached $23.8 billion in 2017, making it the largest U.S. export market, especially for soybeans. Sales fell to $9.3 billion overall in 2018 as the trade dispute heated up. Ag sales picked up in 2019, but official totals for last year have not been released.
Zippy Duvall, president of the American Farm Bureau Federation, said the signing of the deal “is an important step in giving America’s farmers and ranchers the ability to get back to business in the global market.” Duvall added China had fallen from the top export market to No. 5 in just the past 18 months since tariffs went into effect. “This agreement will help turn around two years of declining agricultural exports. The potential of tens of billions more in exports is welcome news for farmers who are eager to compete on a more level playing field,” Duvall said.
The National Pork Producers Council, which has seen pork exports to China grow because of African swine fever, also applauded the deal. NPPC noted China is the largest consumer and producer of pork, but has been ravaged by ASF. While pork sales have grown, a 60% punitive tariff stymied even higher potential pork sales to China. Dropping those tariffs would be a significant sign that China is serious about the trade deal, said David Herring, president of NPPC and a hog farmer from North Carolina.
“Pork is a litmus test for the phase one deal with China,” Herring said. “The worst kept secret in the world is China’s serious shortage of pork and rampant food price inflation. If China is unwilling to drop its tariffs on U.S. pork, it’s difficult to envision the country meeting the $40 billion per year agriculture purchase commitment.”
National Cattlemen’s Beef Association President Jennifer Houston said, “The Phase-One Agreement with China will be a game changer for the U.S. beef industry. For many years, Chinese consumers have been denied access to high-quality U.S. beef—the same U.S. beef we feed to our families. Non-scientific trade barriers like the ban on production technologies, the extensive traceability requirements, and the 30-month BSE restriction have greatly limited our ability to tap into growing beef demand in China. The removal of these massive trade barriers gives Chinese consumers access to the U.S. beef they desire, and it gives America’s cattlemen and cattlewomen the opportunity to provide U.S. beef to a growing consumer-base that represents one-fifth of the global population and a middle-class that is greater than the entire U.S. population.”
U.S. beef regained access to China in 2017, after being banned for 14 years. However, many non-science-based, non-tariff trade barriers remained in place, which limited the amount of American-produced beef that qualified for China. NCBA says that this Phase-One Agreement will begin knocking down those trade barriers and significantly improve access to what is potentially a top export market for U.S. beef producers.
Overall, China is expected to import more than $200 billion in products, including $75 billion in manufactured products, $50 billion in energy products and $40 billion in financial services, Trump said.
In a statement, the White House called it a “historic agreement” that includes commitments by China to make reforms in areas such as intellectual property protection and enforcement, ending forced technology transfers, and ending currency manipulation. At the same time, the U.S. will leave 7.5% tariffs on $300 billion in Chinese products and 25% on another $250 billion in Chinese goods.
“I’m leaving them on otherwise we have no other cards to negotiate with,” Trump said.
Speaking on CNBC early Wednesday, Treasury Secretary Steve Mnuchin stressed there was no agreement with China over future tariff reductions. Any tariff reductions would come from further trade talks, he said.
“This gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved,” Mnuchin said on CNBC.
In introducing guests during the signing ceremony, Trump pointed to every member of his cabinet attending, as well as Republican lawmakers. Trump credited Agriculture Secretary Sonny Perdue’s knowledge of farming. Perdue has overseen the Market Facilitation Program, which has paid roughly $19.4 billion since 2018 to farmers to offset trade losses. The 2018 program paid more than $8.59 billion while the 2019 program so far has paid $10.8 billion directly to farmers.
“Sonny Perdue has been incredible, and we’re taking care of our farmers, I can tell you,” Trump said.
The signing left unsaid the question of when China would eliminate or reduce retaliatory tariffs on U.S. agricultural products. Perdue also will have to address how USDA will handle the third tranche of Market Facilitation Program payments to farmers, and whether there would be a third year of MFP payments after that.