China Ramping Up Purchases of U.S. Farm Goods

Date: Wednesday, May 20, 2020
Source: The Wall Street Journal

As phase one of trade deal gets under way, Beijing isn’t on pace to meet targets for purchases overall

China has significantly stepped up purchases of U.S. agriculture products in the past two months, according to U.S. officials, even as purchases in other sectors fall short of expectations under the first phase U.S.-China trade deal.

In the 10 weeks ended May 7, gross sales of U.S. corn and pork were up around eight times and cotton sales were three times higher than they were in the same period in 2017, before the start of the U.S.-China trade war. Soybean exports to China, the largest component of U.S. farm export receipts, rose roughly a third in the same period, according to the U.S. Department of Agriculture data.

Chinese importers bought 1.19 million metric tons of corn, 1.17 million metric tons of cotton, 1.6 million metric tons of soybeans and 244,532 metric tons of pork in the past 10 weeks, according to the USDA data. In addition to this, the USDA has been notified of sales of roughly 730,000 metric tons more soybeans in the week since May 7, according to their releases.

In January, the two countries agreed on phase one of a trade deal in which China committed to increase purchases of U.S. goods and services by $200 billion over 2017 levels. The value of China’s farm goods purchases this year is to equate to no less than $12.5 billion above either 2017 Chinese import or U.S. export receipts. This will increase further in 2021.

The ramped-up agricultural purchases come at a time when President Trump has sent conflicting signals about his view of the deal.

During a May 3 Fox News “virtual town hall” event, Mr. Trump praised the “incredible trade deal,” but threatened to terminate it if China didn’t carry through on its purchases commitments. Ten days later, he tweeted that “100 trade deals” wouldn’t make up for the lives lost during the pandemic, which he called “the Plague from China.”

And even as China buys more U.S. farm products, it isn’t on pace to meet targets for purchases overall. Research from Peterson Institute for International Economics said under the agreement it was implied that Chinese imports would in 2020 be around $36.6 billion—or roughly $9.1 billion for the first quarter. In the first quarter, China’s imports were just $5.1 billion, although the trade deal didn’t go into effect until Feb. 14.

The research also shows China’s purchases in other areas are also well below year-to-date targets: Through March 2020, China’s imports of covered energy products were $87 million, compared with a prorated target of $6.3 billion.

Part of the challenge for China is that domestic economic conditions have deteriorated due to the coronavirus pandemic. This has reduced demand. Under the agreement “commercial considerations and market conditions” can be taken into account, which would allow China not to meet its commitments.

Trump administration negotiators continue to press Beijing on purchases—and China continues to signal that it intends to abide by the purchase commitments. On May 7, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin called the top Chinese negotiator, Vice Premier Liu He—their first conversation in weeks—to reaffirm the trade deal. The negotiators agreed to continue to cooperate and work on implementing the trade deal, according to Xinhua, the Chinese state-owned news service.

Both sides prepared statements, which the other side had a chance to review, according to people familiar with the negotiations. Mr. Liu didn’t object to the U.S. statement that said the two sides “agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner.”

China had been pressing to boost agricultural purchases before the negotiators talked, said the people. Mr. Trump generally stresses farm purchases as the cornerstone of the deal. Beijing last week announced that U.S. blueberries and barley could now be exported to China.

While consumer demand in China has fallen because of the pandemic, Beijing is looking to meet its targets by boosting food stockpiles, revising the way managers of state-owned firms are judged to include meeting phase-one targets, and increasing economic growth as the pandemic eases, said the people.

Data from China’s Ministry of Agriculture and Rural Affairs shows it will record surpluses for a number of agricultural commodities including soybeans this year.

The ministry said in a statement last week it expects to increase corn imports in the coming 2020-21 year due to low global prices, while soybean imports would increase this year partly in an effort to meet the mandate of the trade deal.

The ministry also revised higher the amount of cotton and soybeans expected to be imported in the year ended Sept. 30 by 18% and 3.8%, respectively. However, other countries are also set to benefit. The USDA says Brazil had record exports in March and April due to the increase in demand from China.

 

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