According to the consensus of Chinese and Chinese Vice Premier Liu He on October 11th with US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on China-US “preliminary agreement,” China will buy 40 billion yuan annually from the United States. Up to $50 billion in US agricultural products. This amount is basically twice the amount of China’s imports from the United States in 2017.
One point in time for the Chinese government to fulfill this purchase limit is that it will be exactly one year away from the 2020 election year.
If China’s purchasing power wants to reach this threshold, even if it is “economically”, it must look at the “political factors” behind it. In particular, it needs the United States to eliminate some political interference and eliminate some technical barriers.
White House economic adviser Larry Kudlow expressed positive views on the purchase of agricultural products in the first phase agreement at the White House on October 17. I hope that the text of the agreement will be finalized early so that it will be available at the Chilean APEC summit in November. The signing of the leaders of the two countries. Kudlow believes that China’s commitment to buy $40-50 billion of US agricultural products is “serious.”
However, he also mentioned that fulfilling this commitment will also depend on private companies and market supply. Kudlow is looking at this issue from the principle of free market. Of course, he also mentioned various factors affecting the market and price, including weather and food safety.
On October 15th, Beijing time, Chinese Foreign Ministry spokesperson Yan Shuang answered questions about purchasing agricultural products from the United States. He said that since 2019, Chinese enterprises have purchased 20 million tons of soybeans, 700,000 tons of pork and 700,000 tons of pork. 230,000 tons of wheat and 320,000 tons of cotton. He said that China will also speed up the procurement of US agricultural products. On the 17th, China’s Ministry of Commerce spokesperson mentioned this data again at the regular press conference and said that the first phase of the agreement between China and the United States, including China, will increase the order for agricultural products from the United States according to the domestic market and in accordance with the principle of marketization. And the United States will create good conditions for this.
It seems that both sides are emphasizing market principles. On October 11th, US President Donald Trump, in front of Liu He, called on American farmers to buy more land and farm tools, also to create market conditions. China also has a requirement that the United States create conditions for China to honor the content of the agreement, such as eliminating the tariffs on goods exported by China to the United States.
According to the White Paper on China’s Food Security released on October 14, China imports a large amount of soybeans every year, accounting for 60% of global soybean trade. China’s soybean demand is around 110 million tons per year, while China’s soybean production is around 16 million tons, and 90% of soybeans need to be imported, mainly from Brazil, the United States, and Argentina.
According to an analysis by FOX Business, although China is the second largest economy, it is not easy to achieve the US$50 billion annual purchase of US agricultural products. China’s imports of agricultural products in 2017 and 2018 were US$124.7 billion and US$136.7 billion, respectively. The import of US$50 billion of US agricultural products from the United States may trigger dissatisfaction with other agricultural exporting countries. For example, if China increases its purchase of soybeans from the United States in the future, it means that China may reduce its soybean imports from countries such as Brazil.
Coupled with the restrictions on US agricultural production and the pressure of China’s domestic exports, it will take at least two years for China to reach the threshold of US$50 billion in US agricultural products, and it will also need the United States to show goodwill, such as lifting the levy on China. Tariffs. However, the United States has always considered how to expand the Chinese market. Kudlow mentioned on October 17 that he expects China to make concessions on “non-tariff barriers” and standards issues to make it easier for US agricultural products to enter China.
Some analysts believe that in order to increase imports of US cattle and US pigs, China may need to be forced to adopt a trading standard similar to that implemented by Japan and South Korea to lift the ban on hormones and drug residues (such as clenbuterol) in meat. Even if these bans are lifted, it will take at least one to two years for China to accelerate the import of US beef.
Therefore, whether China can honor the purchase of US$500 billion of US agricultural products in the next one or two years, in addition to the relevant market factors, the key depends on how it adjusts the foreign trade structure and adjusts domestic relevant regulations. This does not involve economic accounts, but it is also a political account.
From a purely economic perspective, it is possible for China to reach the $50 billion purchase threshold, but it must be supported by sustained political will. Because from a point in time, Trump agreed to negotiate in stages, largely because of domestic political considerations, in order to meet agricultural voters. If he succeeds in re-election next year, the importance of agricultural voters will decline. Trump’s attention may turn to other areas.
Moreover, will the United States cancel all tariffs already imposed, depending on the progress of negotiations on China-US phased trade agreements. This is where the variables are. The thorny issues of China’s industrial policy and state-owned enterprise subsidies that the trade hawks are concerned with are all delayed.
If it is difficult to reach an agreement on issues such as compulsory technology transfer in the second and even the third phase, the United States will restart or increase tariffs, and China’s implementation of the agreement, adjustment of relevant regulations, and increased purchase of US agricultural products may be affected.