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U.S., China sign landmark trade deal

Michael Collins and Colleen Kottke
USA TODAY and Wisconsin State Farmer
Chinese President Xi Jinping and President Donald Trump in Beijing, on May 9, 2019.

A year and a half after launching his trade war against China, President Trump will sign a partial truce on Wednesday.

The agreement is intended to ease some U.S. economic sanctions on China while Beijing would step up purchases of American farm products and other goods. Trump cited beef, pork, poulty, seafood, rice and dairy products as examples.

"This is a big win for the president," Treasury Secretary Steven Mnuchin told Fox News, while conceding the "Phase 1" agreement does not achieve all the reforms the administration initially sought.

"It's not everything," he acknowledged. "There will be a 'Phase 2.' But this is the first time we've had a comprehensive agreement with China."

The “Phase One” agreement, the product of months of negotiations between officials in Washington and Beijing, calls for China to boost its purchase of U.S. goods and services by $200 billion over the next two years, including $32 billion worth of agriculture products.

China also promised to undertake a series of reforms to address U.S. concerns that it forces American companies to turn over their technology secrets as part of the cost of doing business there. The agreement also puts in place a system for resolving trade disputes between the two countries.

“Today we take a momentous step – one that has never been taken before with China – toward a future of fair and reciprocal trade,” President Donald Trump said during a White House signing ceremony with Chinese Vice Premier Liu He.

Speaking through a translator, Liu read a message from Chinese President Xi Jinping, who said the deal “is good for China, for the U.S., and for the world."

Trump said he would travel to China soon as the two sides attempt negotiate broader agreement to deal with unresolved issues, such as complaints that China subsidizes its companies to give them an unfair advantage over foreign businesses.

U.S. Agriculture Secretary Sonny Perdue said the agreement is proof that Trump’s negotiating strategy is working.

"While it took China a long time to realize President Trump was serious, this China Phase I Deal is a huge success for the entire economy," Perdue said. "This agreement finally levels the playing field for U.S. agriculture and will be a bonanza for America’s farmers, ranchers, and producers."

President Donald Trump shakes hands with Chinese Vice Premier Liu He, after signing a trade agreement in the East Room of the White House, Wednesday, Jan. 15, 2020, in Washington. (AP Photo/Evan Vucci)

Better for China?

Analysts question how much the U.S. really got out of the initial agreement, other than a commitment from China to boost its purchase of American goods and services.

“This is largely a deal on Chinese terms,” said Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States. “There is nothing we know about this deal that China wouldn’t like. And there is nothing we know about this deal that China probably wouldn’t have been willing to do some time ago.”

Daly described the deal as “purchases and pledges but no real change.”

Larry Kudlow, Trump’s chief economic adviser, said the agreement vindicated the president’s strategy of using tariffs in trade negotiations, though not in every instance. “I think with China he was exactly right,” Kudlow said. ”I think the tough tariffs hurt their economy and made them much more amenable to a good deal.”

The U.S. has dropped plans to impose tariffs on an additional $160 billion in Chinese imports, and it cut in half, to 7.5%, existing tariffs on $110 billion of good from China.

So far this year, the U.S. deficit with China in the trade of goods has declined by 16%, or $62 billion, to $321 billion compared with a year earlier. The deficit will narrow further if Beijing lives up to its pledges to buy dramatically more American imports.

Trump’s tariff increase have proved to be a headwind for China's economy, which was already slowing, though the damage has been less than some expected. Chinese global exports eked out a 0.5% increase in 2019 despite a plunge in sales to the United States, according to Chinese customs data.

Ag industry await details

Because the terms of the deal are still largely unclear, National Farmers Union President Roger Johnson says his organization continues to be apprehensive about its implications for agriculture and China’s trade practices.

"It's a good sign our countries have found common ground...but given the numerous deals that have been reached and then breached in the past two years, we are also skeptical. And without more concrete details, we are deeply concerned that all of this pain may not have been worth it," said Johnson. "Not only has this trade war cost farmers billions of dollars worth of sales to China, but it has also bruised our reputation, making other trading partners reluctant to work with us."

To justify these lasting damages, Johnson said the deal must deliver more than vague, unenforceable, short-term commitments.

"We need real and lasting behavioral change from China, and we need reliable and robust agricultural export markets," he said. "That is the standard the Trump administration should be aiming for as it negotiates the next phase of this agreement.”

What is known, is that the agreement signifies China’s imports of U.S. agricultural products, such as soybeans, grains, meats, ethanol and the full range of other agricultural products will total at least $80 billion during the next two years. China will also strive to purchase an additional $5 billion of agricultural products annually.

WFBF President Joe Bragger, far left, is joined outside the White House by other  Farm Bureau representatives who attended the signing of the U.S.-China Agreement.

Specifically, China has committed to streamline the timelines and procedures for registering U.S. dairy and infant formula facilities and products and to provide regulatory certainty and market stability for products like fluid milk and dairy permeate powder, said Wisconsin Farm Bureau Federation President Joe Bragger, who traveled to Washington D.C. for the historic signing.

"While it won’t save us from all the hardships facing agriculture, (the agreement) is a step in the right direction,” Bragger said.

National Cattlemen’s Beef Association President Jennifer Houston, who joined President Trump at the White House on Wednesday said signing of the Phase-One trade agreement with China, now lays the groundwork for American-produced beef to be highly competitive in the world’s most populous market.

"The agreement will be a game changer for us," Houston said. "The removal of these massive trade barriers gives Chinese consumers access to the U.S. beef they desire, and it gives America’s cattlemen and cattlewomen the opportunity to provide U.S. beef to a growing consumer-base that represents one-fifth of the global population and a middle-class that is greater than the entire U.S. population."

U.S. pork producers have watched as Chinese authorities have destroyed over 1 million pigs and blocked shipments to contain an outbreak of African swine fever that was confirmed in August 2018. China produces and consumes two-thirds of the world’s pork supply. The price of pork in China  rose 97% over a year earlier despite increased imports of the country's staple meat and the release of thousands of tons from government stockpiles.

"The U.S. is typically the largest pork exporting nation in the world and generally the lowest-cost producer in the world. We are ideally positioned to address this unprecedented sales opportunity for pork in China," stated National Pork Producers Council President David Herring who attended Wednesday's signing ceremony.  "While China's phase one commitments are welcomed, U.S. pork exports continue to be suppressed because of the country's 60 percent punitive tariffs."

In order to fully capture the benefits of this deal, Herring says China needs to eliminate all tariffs on U.S. pork for at least five years.

Given the massive potential China has as an export market for dairy farmers and processors, the importance of the Chinese market to the dairy community grows by the day, said Brody Stapel, Wisconsin dairy farmer and president of Edge Dairy Farmer Cooperative, one of the largest dairy cooperatives in the country.

“Within the next few years, China will surpass the United States to become the world’s largest dairy market, reaching a value of $114 billion a year by 2024," said Stapel. “As we look forward to reviewing the details specific to dairy in this agreement, we trust that the deal reflects how significant China is to the sustainability of our businesses."  

Stapel added that the deal does not address retaliatory tariffs China has placed on dairy products.

"It is important that removing these tariffs be part of subsequent agreements," he said.

The soybean industry is hopeful the agreement will lead to additional measures that restore open trade between the two countries, including a negotiated solution in the next phase that removes tariffs on American soybeans shipped to China.

“We have long supported changes to how China conducts business with the world, in agriculture and other industries. Today’s signing addresses many of those concerns,” said Bill Gordon, soy farmer and American Soybean Association president.

“We are very pleased to see true progress on the regulatory process for ag biotech products, sanitary and phytosanitary measures, and other big points of concern. And, importantly, this milestone moment in the negotiation process bodes well for de-escalation of the tension between our two countries and making further progress,” he said. “Yet, as an industry, we have a lingering unease regarding the tariff on U.S. beans, which was not addressed in this deal. China needs to take action, and, as a goodwill gesture, offer to remove its retaliatory tax on our soybeans.”

While this is a good way to start the new year, everyone agrees there is more work to do, namely encouraging the Senate to pass the U.S.-Mexico-Canada Agreement which is expected to increase export opportunities with the U.S.'s North American neighbors.

“We look forward to securing other trade deals with other trading partners and we encourage the Senate to pass the U.S.-Mexico-Canada Agreement. Building these trading relationships can only help our Wisconsin farmers,” Bragger said.

The Associated Press contributed to this report.