Thursday, 24 Sep 2020

Despite trade agreement, China's purchase of US agricultural goods lags

NEW YORK (AGENCE FRANCE-PRESSE) – Seven months after the United States and China signed a preliminary agreement to temper their trade war, Beijing’s purchases of US agricultural goods have yet to reach the deal’s target.

As President Donald Trump readies for a tough re-election battle in November, US media reported that the two sides are set to meet, beginning on Aug 15, to discuss the deal, which calls for China to sharply increase buying American goods and services this year and next.

But according to data compiled by the Peterson Institute for International Economics (PIIE), Chinese agricultural purchases at the end of June were far from where they should be at this point in the year.

They had reached only 39 per cent of their semi-annual target, according to US figures, or 48 per cent, based on Chinese figures.

“If we get back to what the level of trade was in 2017, we’ll be lucky,” said Mr Chad Bown, a PIIE senior fellow who authored the study, referring to the year before the trade war began.

Under the deal’s terms, China agreed to buy an additional US$32 billion (S$44 billion) worth of US agriculture products over the next two years from 2017 levels.

Chinese orders for corn and soybeans have increased since mid-July, with Beijing buying just over three million tonnes of American oilseeds between July 14 and last Friday (Aug 7), according to US Department of Agriculture data.

At the end of July, the US reported the largest-ever daily order by China for its corn, of 1.9 million tonnes.

The announcements were a relief to US farmers, who are expecting a bumper crop this year and need to find buyers to take it.

They also came at a time of high political tension between the two countries, after the Trump administration authorised sanctions against several Hong Kong leaders over the rights crackdown in the city, and restrictions on Chinese apps WeChat and TikTok.

The Chinese “realise we’re not being the best of buddies right now, but they need the products and they’re gonna take as much as they need”, said Mr Jack Scoville, agricultural market analyst for Price Futures Group.

It is possible that Beijing will change its orders from buying this year’s harvest to next year’s. But analysts warn that any orders could be called off before the ships carrying them leave port.

Brazil and Argentina, two of the world’s largest soybean and corn producers, are starting their harvests next spring, said Mr Brian Hoops, president of the brokerage firm Midwest Market Solutions.

China “could cancel all these purchases they made in July and buy at much cheaper prices if that’s available to them”, Mr Hoops said.

The phase one trade deal signed in January has managed to survive both the tensions and the sharp global economic downturn caused by the coronavirus pandemic, which has badly hit international trade.

US Trade Representative Robert Lighthizer said in June that China would follow through on its commitments, while Washington would also pursue a phase two trade deal that “will focus on issues of overcapacity, subsidisation, disciplines on China’s state-owned enterprises, and cyber theft”.

Mr Bown said any success in getting China to buy not just farm goods but also energy and manufactured goods, would aid Mr Trump in his re-election campaign.

“US$200 billion is a big round number that he can go out and talk about,” Mr Bown said, referring to the amount that China had committed to buy by the end of 2021.

But China has lifted very few of the tariffs it applied to American products during the trade war, making achieving that objective infeasible, he said.

“There’s no economic incentives for the Chinese private sector to buy American. So if China is actually going to buy this stuff, it has to be through state direction,” he added.

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