Uncertainty Clouds China’s Commitment to U.S. Farm Purchases

Date: Wednesday, October 16, 2019
Source: The Wall Street Journal

The roughly $50 billion in agriculture products touted by President Trump is far beyond what China has historically spent each year

China has promised to buy more U.S. farm products, but questions remain over how much, the time frame for purchases, and what the U.S. might have to give in return.

Beijing is pushing the U.S. to drop plans to impose new 15% tariffs on $156 billion in consumer goods starting Dec. 15 and could use the farm purchases as leverage.

Chinese negotiators continue to say purchases must be based on actual demand and at fair-market prices, according to people briefed by the matter. The roughly $50 billion in farm products touted by President Trump is far beyond what China has historically spent in any one year and would likely require Beijing to lean heavily on its state-owned firms to accomplish.

“The uncertainty is still there,” says John Frisbie, managing director of international consulting firm Hills & Company and former president of the U.S.-China Business Council.

U.S. exports of soybeans, sorghum, pork and other agricultural products to China peaked in 2013 at around $29 billion, falling to $24 billion in 2017 before the trade war started. Those exports plunged to $9.2 billion over the past 12 months, according to Commerce Department data.

Mr. Trump said Friday that China will reach the $50 billion range in “less than two years.” But the Chinese side hasn’t confirmed his figures, and on Tuesday Sen. Chuck Grassley (R., Iowa), chairman of the Senate Finance Committee, said he wanted to get more details on what the agreement entails.

Chinese Foreign Ministry spokesman Geng Shuang told reporters Tuesday that Beijing would step up purchases of U.S. agricultural products but didn’t provide details. He said that China’s understanding of the latest trade talks was “consistent” with what the U.S. described.

U.S. and Chinese trade officials are set to continue discussions by phone over the next two weeks, seeking a partial deal that could be signed by Mr. Trump and Chinese President Xi Jinping, possibly at the Asia-Pacific Economic Cooperation in Chile next month.

Analysts say China could attach conditions to a written pact that would allow it to buy less than the U.S. expects, such as by stretching out the time frame for purchases. China could also insist on language saying that prices for U.S. goods must be reasonable and that Chinese purchases comply with the rules of the World Trade Organization, which bans managed trade.

To drastically increase U.S. beef and pork purchases, China would also have to get rid of biotechnology restrictions on those products. U.S. Trade Representative Robert Lighthizer said the U.S. had addressed hindrances on its end, calling those issues “at least as important as the purchases.”

“There’s so much that can happen in the next few weeks to undermine” the $50 billion number touted by Mr. Trump, said Wendy Cutler, vice president at the Asia Society Policy Institute and former Asia negotiator for the U.S. Trade Representative’s office.

The U.S. and China have disagreed since the start of the trade war last year on the level of potential purchases by Beijing and how firm those commitments should be. Beijing knows that agricultural purchases are one of its most powerful levers in negotiations with Mr. Trump, who wants to please U.S. farmers, his key supporters, who have seen sales to China plummet.

Chinese negotiators led by Vice Premier Liu He argue that the U.S., by asking Chinese firms to buy more than they need, is forcing Beijing to direct state-owned enterprises, such as Cofco Corp., to buy. Such a demand essentially amounts to asking Beijing to engage in managed trade, Chinese officials say, a practice many in Washington have assailed as part of China’s state-led economic model.

Chinese private firms alone wouldn’t be able to fulfill Mr. Trump’s figures, leading some analysts to view the U.S. figures as aspirational.

“It’s a target,” said Wei Jianguo, a former Chinese vice minister of commerce now with Beijing-based think tank China Center for International Economic Exchanges. “We would try.”

China has already ramped up purchases of U.S. farm goods in recent weeks and is willing to increase soybean purchases to 30 million tons this year, according to people briefed on the talks. It has bought 20 million tons of soybeans from U.S. producers so far this year, according to the Chinese Foreign Ministry on Tuesday, figures roughly consistent with U.S. data.

Beijing has incentives to import more pork to keep pace with domestic demand and keep inflation at bay. African swine fever has decimated the Chinese pig population, sending pork prices up 69% in September compared with a year earlier.

On the U.S. side, exports would likely need to be diverted from places like Japan and Europe, to China to hit the target within two years. Trump’s China figure is about one-third of the roughly $150 billion in annual U.S. agricultural exports.

Mr. Trump is already selling a Chinese commitment to his base. At a campaign rally in Louisiana on Friday, a few hours after meeting the Chinese trade team in Washington, Mr. Trump told the crowds how his advisers wanted him to stop at $20 billion.

“No, make it $50 [billion]!” he said.

A near-term snag in China’s willingness to buy could be Washington’s plans for tariff increases in December. The U.S. canceled a tariff increase planned for this week on $250 billion in Chinese goods, but Mr. Lighthizer said the president had not made a final decision about December tariffs, which are set to affect $156 billion in Chinese goods.

“That is certainly a part of this process that the Chinese are working their way through,” he said, adding that Mr. Trump would decide “well in advance of that date.”

Purchases of U.S. goods have been a point of contention throughout the trade dispute, although Beijing has been more willing to budge on purchases than on the structural issues the U.S. wants Beijing to concede on.

The issue of Chinese agriculture purchases came to a head in June when Mr. Trump and Mr. Xi met in Osaka, Japan, to call their second truce in the dispute. Mr. Trump said afterward that Mr. Xi had promised to make a large amount of purchases. But China made no official mention of a commitment, and a person with knowledge of the Osaka meeting said Mr. Xi made no such promise.

President Trump didn’t specify at the time how much he believed China would buy, but when it became clear soon after that the purchases weren’t coming through, he hit China with more tariffs.

 

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