China will at least double its spending on US agriculture as part of a partial trade accord between the two countries that’s likely to be well received by crop traders when markets reopen.
Under terms of the arrangement, spending will scale to an annual figure of $40bn to $50bn over two years, Treasury Secretary Steven Mnuchin said. US agriculture exports to China totalled $19.5bn in 2017, government data show.
Prices of trade-sensitive commodities including soybeans, hogs and cotton gained before the announcement as investors anticipated increased Chinese purchasing commitments. If the deal holds, it will be welcome relief to American producers who suffered from depressed prices amid the tit-for-tariffs. China is the world’s biggest consumer of soybeans, meat and cotton. President Donald Trump said on Friday US farmers should buy more land and new Deere & Co tractors in response to partial “phase one” China trade deal.
The spending levels suggests “that they may plan on buying a lot of US meat, along with the soybeans they need, as well as corn and ethanol,” said Arlan Suderman, chief commodities economist at INTL FCStone Inc.
Some traders expressed a desire to see more details on the agriculture component of the deal before getting too excited.
“This is good news for commodities in general, but the absence of more concrete information and the constant possibility of modification and/or threatening the important ’card game’ is highlighted,” said Murilo Aguiar, a commodity analyst for INTL FCStone in Sao Paulo.
Market watchers also pointed to the need to know about tonnage-commitments. Earlier this week, Chinese officials had discussed offering to buy total US soybean volumes that could exceed 30mn tonnes, according to people familiar with the situation. Before the trade war, the Asian country bought 30mn to 35mn tonnes of soybeans in a normal year.
“It really depends on the quantities involved,” said Bryce Knorr, a senior grain market analyst at Farm Futures. “President Trump is focused on a total dollar amount because his goal is the trade deficit. We did $29bn with China in 2013, thanks in part to some very expensive soybeans. Will China be interested in buying stuff it may not need two years from now if Elizabeth Warren or Joe Biden is in the White House?”
Reaching $40-$50bn could be “a stretch” given low commodity prices, said Stephen Nicholson, a senior analyst for grains and oilseeds at Rabobank. While increasing meat exports to China would help the dollar figure, it may be hard to hit the upper end, he said.
Trump indicated he could sign a deal with China’s Xi Jinping at an upcoming November summit in Chile.
“There is no deal on paper yet, and that could take five or more weeks,” said Dan Basse, president of AgResource Co. “China seems to have an aversion to signing deals with enforcement, as we saw last May.”
The agreement between the US and China marks the largest breakthrough in the 18-month trade war that has hurt the economies of both nations. Importantly, Trump said the deal was the first phase of a broader agreement. The president indicated he could sign a deal with Xi at an upcoming November summit in Chile.
While the limited agreement may resolve some short-term issues, several of the thorniest disputes remain outstanding. US goals in the trade war centre around accusations of intellectual-property theft, forced technology transfer and complaints about Chinese industrial subsidies.
Donald Trump shakes hands with Liu He in the Oval Office on October 11.
Xi told Trump in a letter — which the White House distributed on Friday — that it’s important the countries work together to address each others’ concerns. “I hope the two sides will act in the principle and direction you and I have agreed to, and work to advance China-US relations based on co-ordination, co-operation and stability,” the letter said.
Chinese state news agency Xinhua said negotiators made efforts toward a final agreement, but stopped short of calling Friday’s outcome a deal. The editor-in-chief of China’s most prominent state-run newspaper Global Times, Hu Xijin, noted on Twitter that official reports from China didn’t mention Trump’s goal of signing the deal next month, which indicates Beijing wants to keep expectations low.
The Trump administration also said issues related to Huawei Technologies Co aren’t part of Friday’s deal and will be a separate process.
Equities advanced globally Friday amid growing conviction that the world’s two biggest economies would negotiate a trade truce, though US stocks pared gains after Trump’s announcement near the close of trading. Trump tweeted earlier Friday that if the countries did reach an agreement, he would be able to sign it without a lengthy congressional approval process.
Trump’s announcement drew a wary welcome from even Republicans on Capitol Hill.
“After so much has been sacrificed, Americans will settle for nothing less than a full, enforceable and fair deal with China,” Senate Finance Committee Chairman Chuck Grassley said in a statement after the announcement. “Farmers in Iowa know far too well that the trade war has caused real financial pain in the heartland. But we need to know more about this deal and follow-through from China will be key.”
On Thursday and earlier Friday, Liu and US Trade Representative Robert Lighthizer held the first senior-level discussions between Washington and Beijing since a previous agreement fell apart in May and tariffs were raised in the months after.
“Past experience is that US–China trade agreements aren’t worth the paper they are written on, and this one hasn’t even been written down. For now, though, indications on trade are a little more positive. If that persists, it could help put a floor under sliding global growth.”
The US was threatening to increase tariffs on Tuesday on about $250bn of Chinese imports to 30% from 25%. More duties on $160bn of Chinese products were targeted for December 15.
The threat of those import taxes on US consumers, falling around the holiday season, raised the prospect that the US economy would slide toward a recession heading into Trump’s 2020 re-election bid. The American manufacturing industry, which Trump vowed in 2016 to revitalise, is already contracting in part because of the trade war.
The Trump administration said that as part of the deal, China would scale its purchases of US farm goods over two years to an annual total of $40bn to $50bn. Trump encouraged US farmers to buy more land and Deere & Co tractors in response.
China in recent weeks had already discussed buying more US products such as soybeans, pork and wheat. Some traders remained skeptical that buying soybeans from the US represented a significant breakthrough in the overall trade talks, Bloomberg reported on Friday.
Senator Ronald Wyden, the ranking Democrat on the Finance Committee that has jurisdiction over trade policy, pushed back on Trump’s tweet in a statement Friday to Bloomberg News: “Donald Trump should know that any meaningful trade deal is only legitimate because of the authority granted to him by Congress, and that authority can be taken away,” he said.
Under the US Constitution, Congress holds power over international trade. For decades, it has legally delegated trade-negotiating authority to the executive branch. Lawmakers in recent months have grown increasingly wary of what they see as Trump’s abuse of that authority and discussed ways to claw it back, citing the president’s many unilateral tariff measures and a lack of transparency in negotiations.
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