After a longstanding trade war with China, there may be some hope for the future. It is unclear what lies ahead, but after recent negotiations there may be some promise for farmers. Find out what happened in the negotiations and what’s next below.
A dinner meeting between President Trump and China President, Xi Jinping, resulted in new trade negotiations. The United States committed to not increase tariffs on $200 billion in Chinese goods in January. The tariffs will stay at the 10% rate rather than moving to 25%. Likewise, China committed to make purchases of U.S agriculture, energy and industrial products.
Though the amount is not yet agreed upon, China promised to purchase a “very substantial” amount of U.S. goods. Both parties agreed not to increase or add any additional tariffs which would further escalate the current trade war. Specifically, Beijing promised to buy an unspecified, yet very large amount of goods with the purchase of farm goods beginning immediately.
However, no substantial purchases can happen with a 25% duty still in place on soybeans, corn, sorghum and wheat.
Cease-Fire Not an End
Some feel Chinese should drop the tariffs to show their commitment to the trade truce. Currently, the Chinese and U.S. presidents have economic teams working to remove all tariffs. Until then, the only buyers likely to make purchases of pricey U.S. grain will be state-owned enterprises instructed by Beijing to buy soybeans for state reserves.
China will most likely resume buying U.S. soybeans due to limited supplies in Brazil. However, it is yet to be determined if they will remove tariffs on imports of American soybeans in light of the new truce.
The cease-fire between the U.S. and China sent soybeans higher, with prices ending the day up double digits.
Many experts believe it was a step in the right direction.
“I think it’s a meaningful process in the sense that it limits the escalation,” said Wally Tyner, Purdue University agricultural economist.
The escalation would have resulted in a 25% tariff on all $267 billion in Chinese imports. However, Trump and Xi Jinping agreed to a 90-day window to negotiate a permanent cease-fire to the trade war.
“In that sense it’s good, but it doesn’t do anything about the tariffs that are already in place, and that’s the concern,” said Tyner.
It is clear Brazil and Argentina do not have enough soybeans to supply China all they need. However, there may not be a rush to buy U.S. products either. China’s promise may simply be a recognition they will need to buy U.S. products, it doesn’t guarantee the large amount they have suggested.
Tyner believes the U.S. will still see a reduction in demand. The question is the degree the demand will drop. Some other countries have come to the rescue in terms of buying U.S. soybeans. However, it has not been equivalent to the market we would have seen without the trade war.
The next 90-day period will be crucial for producers. If something isn’t resolved in the next 90 days, we could see added tariffs.
Farmers are looking forward to the opportunities this negotiation presents. However, after the downward spiral following the beginning of the trade war, the optimism comes with caution.
Even so, the announcement on tariffs and Chinese agricultural purchases has given farmers hope. Many farmers have felt like they were hanging on by a thread. The implications of the trade war even reached outside the circle of farmers. When farmers don’t make money, they can’t pay seed dealers for seed.
Many feel the new agreement is a step in the right direction. Improving trade relations is giving farmers hope prices will improve sooner rather than later. The trade war has already been costly, farmers need an upward move in the market.
Central Indiana farmer Mike Beard says while it is still early – the news is encouraging and he’s optimistic. “But we’ve had a real challenge trying to keep the bottom line out of the red,” he says.
Trump and Xi Jinping entered into negotiations and reached a 90-day cease-fire. During this time, they will work towards a more permanent resolution. This is an exciting time for farmers, but they continue to stay cautious. The new negotiation is certainly a step in the right direction. However, no one is out of the woods yet. The next 90 days will be crucial in determining what the future holds for U.S. trade with China.
Be sure to check out Ag Nook’s related story titled, “The Ball is in China’s Court“.