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Phase One makes progress, still comes up short with Chinese trade

When President Donald Trump signed the first phase of a trade deal with China on Jan. 15, U.S. agriculture was pleased with the promise of nearly $40 billion in farm product purchases by China in 2020.

“The signing of a trade deal with China is a big step in the right direction as farmers in Ohio and across the country are eager to get back to business globally,” said Frank Burkett, Ohio Farm Bureau president. “Restoring our ability to be competitive in China is welcome news for U.S. agriculture and we encourage the Administration to continue building on its success in a Phase One deal and aggressively pursue a full trade agreement with China.”

Over the next two years U.S. trade officials said China will spend $80 billion purchases of agricultural products from the United States, with the amount projected to be slightly below $40 billion in 2020 and slightly above $40 billion in 2021. Beyond agriculture, China agreed to purchase a total of $200 billion in U.S. goods. Significant trade deal concerns remain, however, for U.S. crop and livestock exports.

“The National Pork Producers Council applauds the administration for its hard work in negotiating this deal. China is the world’s biggest producer and consumer of pork,” said David Herring, NPPC president. “While China’s Phase One commitments are welcomed, U.S. pork exports continue to be suppressed because of the country’s 60% punitive tariffs. In order to fully capture the benefits of this deal, we need China to eliminate all tariffs on U.S. pork for at least five years.”

The dairy industry too celebrated the positive progress of the Phase One deal with China’s nontariff barriers important to U.S. dairy including:

  • Tackling facility and product registration steps that have stymied firms seeking to export to China for several years;
  • Improving the regulatory pathway for exports of infant formula and fluid milk (including extended shelf life milk) to China;
  • And creating new transparency and due process obligations regarding geographical indications and common food names.

Problems for dairy exports to China also remain, however, given that retaliatory tariffs continue to be a significant impediment to U.S. dairy exports to the country.

The skepticism regarding the Phase One trade deal is shared by Ian Sheldon, an agricultural economist and professor with The Ohio State University College of Food, Agricultural, and Environmental Sciences (CFAES). The new trade deal might stop the escalation in the trade war, but it does not eliminate tariffs. Consumers in China and the United States will still pay 20% on average in import tariffs.

He also thinks the $40 billion increase in China’s imports of U.S. agricultural goods by the end of 2020 is likely higher than either country can deliver on. China purchased $24 billion in U.S. agricultural goods in 2017 before the trade war began. So the deal is calling for a $16 billion annual increase above the 2017 total.

“How can a country virtually double imports in a year?” Sheldon asked.

The only way China can likely do that is if the Chinese government pressures its state-owned trading agencies to commit to that level of purchases of U.S. agricultural goods, he said.

“Most farmers will tell you they want to be able to compete on the world market,” Sheldon said. “If the Chinese commit to importing more than they would have at world prices, then this is an artificial increase in market access for the United States.’’

Other countries that export goods to China, including Brazil, could file disputes with the World Trade Organization, alleging that the deal is discriminatory.

The terms of the new trade deal also likely will be challenging for the United States to meet, Sheldon said. Production of agricultural goods will have to rise significantly to supply China with the promised level of imports, he said.

Sheldon suggests a better solution to the trade war with China would be to return to the relatively low tariff levels that were present on both U.S. and Chinese imports before the trade war with China started.

“It’s good that the agreement means we’re not escalating the trade war,” Sheldon said. “But I’m not convinced that either the United States or China can meet some of the commitments — at least not in the time frame they’ve set up.”

Ultimately, while farmers are celebrating the progress, there is still plenty of reason for concern moving forward as negotiations with China continue into some significant challenges in Phase Two. Michelle Erickson-Jones, Farmers for Free Trade spokesperson and Montana wheat farmer, shared the concerns of many.

“While Phase One makes incremental progress, it remains to be seen whether it will deliver any meaningful relief for farmers like me. This deal does not end retaliatory tariffs on American farm exports, makes American farmers increasingly reliant on Chinese state-controlled purchases and doesn’t address the big structural changes the trade war was predicated on achieving. The promises of lofty purchases are encouraging but farmers like me will believe it when we see it,” she said. “In the months ahead, we will be closely scrutinizing the purchase promises in this agreement. We will see whether Phase One takes steps to dig out from the hole the trade war created or whether, like previous ag purchase promises, it is all talk. In the meantime, the Administration should waste no time in returning to the negotiating table and reaching an agreement that ends the trade war for good.”

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