Reality Check: China won’t immediately start buying U.S. ag goods
The cease-fire between the U.S. and China sent soybeans higher, with prices ending the day up double digits. Purdue University agricultural economist Wally Tyner said the meeting Saturday night was a step in the right direction.
“I think it's a meaningful process in the sense that it limits the escalation,” said Tyner.
That escalation would have manifested in a tariff on all $267 billion worth of Chinese imports of 25 percent, up from the current 10 percent. The threat is now on hold after President Donald Trump and his Chinese counterpart 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.
The White House touted over the weekend and again on Monday that China will immediately start buying U.S. agricultural goods. However, agricultural economists like Tyner warn with tariffs still in place, that may not be a reality anytime soon.
“I don't think there's going to be a rush to buy U.S. products,” said Tyner. “On the other hand, it's pretty clear now that Brazil and Argentina cannot supply all of the Chinese needs. Saying that they're [China] going to start buying U.S. products may just be a recognition of the reality that they have to buy some product, but it's not going to be a large amount.”
Tyner said the U.S. is still going to see a reduction in total demand; the extent of that demand loss is still unknown. He said some other countries are coming to the market to buy U.S. soybeans, eating up some of the lost demand, but he said it’s not to the extent it would have been without the trade war with China.
With soybean exports struggling, time is running out in the typical export window to ship beans to China before the Brazilian crop comes online. Tyner said even if exports resume today, he’s doubtful the U.S. can export to the level it saw before tariffs were put into place.
“I don't think, in soybeans, we can make up the lost ground,” said Tyner. “Our estimate was that the total loss and demand for the U.S. would be about 29 percent. I think that's still a good number - it could go up or down – but what we need is a long-term settlement.”
Tyner said he is watching what happens in the next 90 days closely. That’s the timeline the Trump Administration has given for the two sides to work through issues. If something isn’t resolved in the next 90 days, additional tariffs could be put into place.
“We need, during this 90-day period, to negotiate a long-term settlement that deals with the major issues - theft of intellectual property rights and the like- and gets rid of the tariffs on both sides,” said Tyner. “That's what we can hope for the longer term.”
“Reprinted by permission of Farm Journal media, December 2018”