U.S.-China trade talks resume with continued enforcement of phase one deal
According to U.S. Census Bureau figures, China missed the $36.5 billion goal for 2020 set in the phase one deal, coming in at $28.75 billion worth of purchases. China is also on pace to be short of its 2021 goal of $43.5 billion. U.S. Census figures through August 2021 put China’s agricultural and related purchases at $19.28 billion.
The Biden administration has launched new trade talks with China with a move for more meaningful reforms.
U.S. Trade Representative Katherine Tai announced on Monday, Oct. 4, that the U.S. will maintain tariffs on Chinese imports as it pushes Beijing to fulfill pledges to buy additional U.S. goods and services made under the phase one deal. They may also consider imposing additional levies as leverage to get China to fulfill terms of the trade agreement with the U.S. and are seeking more meaningful reforms in a new round of talks.
The administration spent months reviewing China policy and the tariffs imposed by the Trump administration that initially taxed about $370 billion in Chinese imports. Tai also announced the U.S. will reopen a process for U.S. companies to seek exemptions from tariffs. The Trump administration created an exclusion process for companies that could show they had no viable alternative to Chinese imports. However, the Biden administration allowed that process to expire.
At the heart of the phase one deal was China’s commitment to increase its purchases of U.S. agricultural products, energy products and manufactured goods by an additional $200 billion over 2020 and 2021. However, according to U.S. Census Bureau figures, China missed the $36.5 billion goal in 2020, coming in at $28.75 billion worth of purchases. China is also on pace to be short of its 2021 goal of $43.5 billion. U.S. Census figures through August 2021 put China’s agricultural and related purchases at $19.28 billion.
“They didn’t quite meet what they promised to do with the phase one trade agreement," said former U.S. Ambassador to China Terry Branstad. "They came close but not quite. Part of that was because of COVID and the impact that that had on trade.”
However, he remains optimistic about the remainder of the pact.
“We’ll see. We certainly hope that they will meet their responsibility under the agreement and that the agreement can be extended,” he said.
A game changer
South Dakota Farm Bureau President Scott VanderWal said that while China has fallen short of its obligations under the trade pact, the purchases that have happened represent a big improvement.
“No China isn’t going to make it, but they’ve done a lot better than they have in the past, and it's something that we haven’t sold to them in the past, and it increased our exports and put some excitement in the market, and that’s what we needed,” he said.
China’s buying has been a real game changer for U.S. agriculture, according to Branstad.
“They have purchased record amounts of soybeans, pork, and they’re even buying beef and chicken, which they weren’t before I went over there," he said. "So, we’re real pleased with that, and it’s made a real difference in the price that U.S. farmers are getting.”
Branstad admits not all of China’s buying spree was tied to the deal. Much of the purchasing was a result of China’s need to replenish their strategic reserves after COVID-19, and the pork purchases were largely a response to African Swine Fever decimating China’s hog herd. Plus, Branstad said China’s farmers had some cropping problems.
Mike Yost, former American Soybean Association President and former head of the Foreign Ag Service, said his sources confirm China’s intentions.
“I’m told they’re filling up the reserves," he said. "They were empty and food security is a big thing in China.”
VanderWal agrees China’s buying spree was more about them trying to raise their standard of living of their middle-class versus trying to play by the rules of the agreement.
“They continue to expand their population. They want more protein and higher quality diets, and in order to do that they need to import more things like soybean oil, pork and beef,” he said.
Yost indicated China’s buying of ag goods in 2020 was a surprise to him. With his vast experience working with them as a trading partner, he was doubtful they would uphold their end of the deal. So, going forward he’s not sure if they will make all the purchases promised for 2021.
“I only believe in what I see get loaded in the boat and unloaded in China, because I think at any time things could blow up, and they’ll use any rational to submarine the agreement,” Yost said.
VanderWal is trying to stay positive as well.
“Going forward, we still need them as a customer, and whether they quite make that commitment they made, we weren’t sure when they made that agreement that they would ever reach it, but like I said it's more than we had before,” he said.
Tai complained in her remarks that additional market reforms are needed in China as their regulatory authorities continue to deploy measures that limit or cut off market access for U.S. producers and hurt their bottom line. She said China’s government continues to ignore global trading rules, undercutting businesses and workers around the world.
Instead of reforming, “Beijing has doubled down on its state-centered economic system,” Tai said, adding that it's clear that China’s plans don’t include meaningful reforms to address the concerns that have been raised by the U.S. and other countries.
That leaves Branstad and others cautiously optimistic about achieving phase two of the pact.
“Which will be even more difficult because phase two had do with stopping the subsidy of these Chinese companies, state owned enterprises,” he said.
Senior Biden administration officials say that while they intend to press China on issues that were left out of the deal, they doubt China will agree to consider serious negotiations over a second phase.
Yost agrees that the second phase will be a heavy lift.
“So many things are at play when you talk about China," he said. "They’re going to be a big consumer of agricultural products. The big question is where they’re going to get them, and the geopolitical process is going to be a big part in that.”
Yost said stiff competition from South America, combined with the fact that agricultural trade often gets caught in political battles, may make the U.S. the supplier of second choice.
“We’re going to put pressure on them for human rights, Hong Kong situation, Mongolia and other places, and they’re going to say, hey Brazil has a crop. We’ll buy there,” he said.
Still, farm groups are pressing the administration, because the tariffs on agricultural imports to China would be re-negotiated and possibly dropped through the phase two agreement. Those tariffs have severely hurt U.S. agriculture compared to global competitors.