What Is So Great About This China Soy Deal?
China is returning to the U.S. soybean market, and other major farm commodities like pork. But the $50 billion worth Liu He said China would buy is now $20 billion, which means China is basically agreeing to return to the market and that’s it.
This dollar amount is what China spent prior to its own placement of restrictions of U.S. farm goods.
Bloomberg reported on Thursday that China would spend some $20 billion over the next 12 months and issue tariff waivers on other grains. All of this depends on President Trump and Xi Jinping signing the Phase 1 deal, expected by the market at the APEC Summit in Chile next month.
So much can happen between now and then. Congress passing an anti-Beijing human rights act in regards to its treatment of ethnic minorities in Xinjiang and its open support of the Hong Kong pro-democracy protests send the wrong tone to China.
Moreover, Vice President and China hawk Mike Pence will speak this morning about China. That will also rub Xi the wrong way, for sure. Whether that entices Xi and similar China hawks in the Communist Party to just walk away from the Phase 1 deal is anybody’s guess.
Consensus among market participants is that China needs to make a deal as manufacturers are leaving the country because of tariffs. It’s not an exodus, but it should warrant concern in Beijing seeing how many of those jobs are blue-collar and not easily replaced. (Welcome to the American Midwest and Upstate New York, President Xi!)
See: Is China Really Killing American Farms? – Forbes
A return to the past will be good for many soy farmers, in particular. But this is not exactly progress. This is just going one step forward after moving one step backward.
Overall, U.S. agribusiness has not been harmed all that much by China tariffs. Last year saw exports rise by 1% and this year exports are holding their own.
According to an unpublished study by Deloitte, the U.S. exported $13.7 billion worth of soy and other plant-based commodities to its top 12 markets between January and August 2019. China is part of the top 12.
Export values are lower than the $14.06 billion registered in the same period in 2018, which was the first year of the trade war, and a record-breaking year for exports of those products.
The $13.7 billion is also a record-breaking year if discounting for last year.
U.S. agricultural exports to China are mostly all soybeans. Non-soy exports to China account for only around 4% of U.S. agriculture output.
U.S. exports around $21 billion worth of farm goods to China. So if China is going to import $20 billion over the next 12 months, they’ve given up nothing. Of that $21 billion, soy accounts for over half.