American farmers battered by President Trump’s protracted trade war with China could see some much-needed relief, as the door slammed shut by Beijing on U.S. agricultural products has cracked.
However, for those gripped by more than a year of roller-coaster trade tensions, the prospect of China buying as much as $50 billion in farm products, as announced by Trump this month, is being met with a dose of skepticism.
“It is progress, but there’s still a long way to go and a lot of questions on the $40 to $50 billion,” said Michelle Jones, a farmer in Montana who raises wheat, barley, corn, and sunflowers. “The non-tariff barriers, the less-exciting stuff, that is the stuff that really has the potential to be a big deal depending on how it gets on paper.”
After a year of escalation in the trade war between the United States and China, and negotiations that have come in fits and starts, Trump announced while seated alongside Chinese Vice Premier Liu He that the two sides reached a “phase one” trade deal to stave off tariffs on $250 billion worth of Chinese goods.
At the deal’s heart is Beijing’s promise to buy between $40 billion and $50 billion in U.S. farm products, a term that would benefit American farmers who have borne the brunt of the trade war’s ups and downs. But farmers, while relieved to see progress in negotiations, have concerns about the likelihood the purchases will come to pass.
“That far exceeds what they’ve ever bought from us before, and having a dollar amount like that in a trade deal, for me, it’s managing trade,” Jones said.
A fourth-generation farmer, Jones said agricultural purchases of as much as $50 billion could be “really exciting” if China followed through, but “without any quotas for specific commodities, it’s a weird target to have.”
“I do not expect it to come to fruition in that way,” Jones said.
Farmers such as Jones are right to be skeptical.
The U.S. and China neared the completion of a trade deal in May. However, talks imploded after the Chinese reneged on a series of promises that addressed the Trump administration’s top issues with Beijing, including theft of U.S. intellectual property and currency manipulation.
In response, Trump announced he would raise existing tariffs on $200 billion worth of products from China from 10% to 25% and impose new duties on $325 billion worth of goods.
Beijing has already distanced itself from the $40 billion to $50 billion figure, instead saying it would buy farm goods according to the needs of the Chinese market. White House economic adviser Larry Kudlow said China made a “serious commitment” but acknowledged the purchases might depend on other factors, including prices, weather, and market conditions.
Additionally, $50 billion in agricultural goods exceeds what China has spent in any given year. Farm purchases peaked in 2013, when the U.S. exported roughly $29 billion worth of soybeans, corn, wheat, and other products. But in 2017, they fell to $24 billion and plummeted to $9.3 billion in 2018, according to the Office of the U.S. Trade Representative.
“It’s frustrating because this is our livelihood,” said Grant Kimberley, director of market development for the Iowa Soybean Association. “We are a very export-dependent industry; all of agriculture is very export-dependent because the U.S. is very productive. We’ve been blessed with extremely great land, great weather for the most part, from a global perspective, we’ve got a lot of advantages. Then we’ve got great technology and great farmers and great leaders.”
Farmers have been receiving mixed messages from the Trump administration over whether the $40 billion to $50 billion in farm purchases will occur in one year or be spread over two, the latter of which would bring agriculture exports back in line with pre-trade war levels.
“I’m a little skeptical, and I’m not going to go out and trade my tractor and buy a new piece of machinery,” Kimberley, a sixth-generation farmer who raises soybeans and corn, said.
But that’s precisely what Trump is urging farmers to do.
In announcing the initial agreement, the president urged farmers to “go and immediately buy more land and get bigger tractors.”
“They’ll be available at John Deere and a lot of other great distributors,” he said.
While China has agreed to step up its purchases of American agricultural goods, farmers fear the U.S. has ceded a crucial export market as Beijing has turned to other countries since the start of the trade war.
For wheat, China has turned to Canada and Australia, Jones said, making the U.S. a residual supplier. While a drought has hampered Australia, Canada saw a spike in the amount of wheat it shipped to China.
Additionally, China’s soybean purchases from Brazil have surged, with Chinese buyers purchasing boatloads of Brazilian soy in the wake of the announcement of a phase one deal with the U.S.
“Once you lose export markets, it’s very difficult to get them back,” said Jones. “Once companies start building supply chains, that makes it hard to decide, ‘We’re not going to do that anymore.’ That’s been a considerable concern for the whole industry.”
China’s reliance on Brazil and other countries for commodities is a long-term consequence of the tit-for-tat trade war, Kimberley said, one that will persist regardless of a final deal between the U.S. and Beijing.
“Once you have new land that’s brought into production and infrastructure, that stays online,” he said. “You have that as long-term competition now that we’ll deal with for the next 20 to 30 years.”
The details of the phase one deal have not been released, and Trump acknowledged the limited agreement would take several weeks to write. The president said the deal could be signed when world leaders meet in Chile for the Asia-Pacific Economic Cooperation meetings next month.
Negotiations are expected to continue, and China said the ultimate deal is contingent on the U.S. agreeing to lift tariffs on Chinese goods. The Trump administration is set to impose another batch of levies on Dec. 15, effectively ensuring every product that leaves China for the U.S. is taxed, though it’s unclear whether those duties will move forward as planned.
Once the specifics of the initial deal are made public, John Newton, chief economist at the American Farm Bureau Federation, said farmers would carefully watch the markets to ensure the sales of farm products actually occur.
“We’ve been doing this for close to two years now, and at this point, you want to see product actually loaded on the boats and shipped out of the U.S.,” he said.
But once those sales occur, though, depending on their timing and the products bought, Newton said they would “help relieve the inventory we have in the U.S.”
In the meantime, farm debt has soared to levels not seen since the 1980s farm crisis, and farm bankruptcy filings rose 13% from June 2018 to June 2019, according to the AFBF.
Despite these hardships and headwinds, American farmers have been patient, Kimberley said, as they recognize the “big-picture dynamics at play.” However, he added, “we can’t pay our bills with patriotism.”