China phase one deal reached

Additional agricultural purchases included in deal to hold off tariff increase on Dec. 15.

Jacqui Fatka, Policy editor

December 13, 2019

6 Min Read
U.S., China Reportedly Reach Preliminary Trade Deal

Friday morning both President Trump and China announced a deal had been reached between the two nations to limit tariff increases by the United States in exchange for a promise on increased agricultural purchases as well as energy and manufactured goods. A date has not been set to sign the deal, but it offers good news moving forward for agriculture.

In a statement from the U.S. Trade Representative, the Administration noted that the United States and China have reached an “historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.” 

USTR said the Phase One agreement also includes a commitment by China that it will make substantial additional purchases of U.S. goods and services in the coming years, although the USTR statement did not offer details. Reports had indicated China was willing to agree to $40 billion in purchases, while President Trump was pushing for $50 billion.  Vice Minister of Agriculture and Rural Affairs Han Jun confirmed that Beijing will increase agricultural purchases significantly, though he did not specify by how much. 

Related:U.S. pork can reduce U.S. trade deficit with China by nearly 6%

USTR said importantly, the agreement establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.  The United States has agreed to modify its Section 301 tariff actions in a significant way. The United States will be maintaining 25% tariffs on approximately $250 billion of Chinese imports, along with 7.5% tariffs on approximately $120 billion of Chinese imports.

“Today’s announcement of a Phase One agreement with China is another significant step forward in advancing President Trump’s economic agenda.  Thanks to the President’s leadership, this landmark agreement marks critical progress toward a more balanced trade relationship and a more level playing field for American workers and companies,” said Secretary of the Treasury Steven Mnuchin.

Senate Finance Committee chairman Chuck Grassley (R., Iowa) said the news is a positive development.

“Easing tensions and lowering tariffs is welcome news. This paves the way for a broader agreement that must address non-tariff barriers and intellectual property issues,” Grassley said. “Iowa in particular will benefit from China’s purchasing of agricultural products, especially hog, corn and soybean farmers. But China must know that this gesture of goodwill does not mean the United States will accept anything less than a full and enforceable trade deal.”

Related:China fuels October pork exports; beef exports lower

The duties, which were scheduled to take effect at 12:01 a.m. EST on Sunday, would have hit consumer goods from China, including smartphones and children's toys, right in time for holiday shopping.

New data released by Tariffs Hurt the Heartland this week shows American consumers and businesses have paid an additional $42 billion since the trade war began in February 2018 through October 2019. Chinese tariffs on American exports totaled $12 billion since the start of the trade war and topped $1.3 billion in October alone as China further raised tariffs in retaliation for U.S. List 4A tariffs. These tariffs have focused heavily on American farm exports. The October data shows that exports to China that are subject to retaliatory tariffs are $30 billion below their 2017 levels - a 25% decrease. 

“This data shows that farmers in America’s heartland - the very places where the 2020 campaign will turn - are paying a steep price because of the trade war,” said Brian Kuehl, co-executive director of Farmers for Free Trade. “The President needs to show he can close not just a Phase One deal, but a comprehensive deal that rolls back the tariffs and ends the trade war. Farmers want long-term reliable markets. One-time purchases are not a replacement for the certainty that global trade opportunities provide.”

The National Pork Producers Council (NPPC) said there are few products better positioned to slash the trade imbalance with China than pork. China is the world's largest producer and consumer of pork, but African swine fever has reduced its pork production by 50%. The United States is able to supply large quantities of safe, high-quality pork at affordable prices. NPPC has been advocating for China to eliminate all tariffs on U.S. pork — both the 60% punitive tariff in retaliation for U.S. trade policy decisions as well as the 12% WTO/MFN tariff. Iowa State Economist Dermot Hayes estimates that if China eliminates tariffs, U.S. pork exports would grow to almost $25 billion annually, creating almost 200,000 new U.S. jobs, and reducing the trade deficit with China by 6% within ten years.

National Cattlemen's Beef Assn., president Collin Woodall said the announcement is welcome news for the U.S. beef industry. "While we wait to learn more about the details of the agreement, we are optimistic that this positive news will bring long lasting relief to farmers and ranchers who have been targeted with China’s retaliatory tariffs for many months.” said Woodall. “While tariffs grab most of the headlines, China’s unjustifiable non-tariff barriers and restrictions on science-based production technologies must be addressed so that Chinese consumers can enjoy the same high-quality, safe and sustainably-produced U.S. beef that Americans have enjoyed for decades. We encourage the Trump Administration to keep working with China to establish meaningful market access and rules of trade based on market demand and science, most importantly. This is an important step forward and something that both countries must build on for our mutual prosperity."

Iowa Soybean Assn. president and Rippey, Iowa farmer Tim Bardole strongly urged U.S. and Chinese trade officials to continue moving forward in good faith to resolve the important matters that need attention so that trade and commerce can flow once again. 

“It's important to note, however, that the significant financial harm done to soybean farmers will not be undone with the signature of a phase one trade agreement. The impact of nearly 18 months of lost sales to a country that consumes one-third of U.S. soybean production will not be made up anytime soon. This is particularly true given another large South American crop is in production,” Bardole warned.  

John Bode, president and CEO of the Corn Refiners Association, said the “news of a phase one trade agreement with China is a welcome sign of progress as we continue to build and strengthen trade equitable relationships across the globe. We look forward to reviewing the details of the agreement going forward.”

U.S. corn refiners export over $2 billion dollars in goods annually, adding $4.7 billion to the overall economy. With 15% of all U.S. refined corn products exported annually, international trade is vital to the success of CRA members.

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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