Your Reading List

U.S. on the cusp of a China trade deal

Free Market Reflections with Steve Dittmer

Despite not meeting the end of March deadline originally set in the President Xi Jinping-President Trump meeting, the trade negotiations between China and the U.S. moved along at a relatively rapid clip in March and April. The revised goal was to have an agreement ready for the leaders to sign by late April-early May. Rather than leave any dramatic moves for the leaders to announce at the summit, the plan was to have the final agreement already nailed down with time for review, before the summit.

Reportedly, the Chinese did not want any loose ends that could tempt President Trump to get up and walk as he did in North Korea. They also want everything approved by the Communist Party leadership and President Xi beforehand. Why the Chinese would make any comparison between their negotiations with President Trump and those with the unpredictable, sanity-questioned Kim Jong-Un, I’m not sure. But I do like the idea of having things buttoned down beforehand, rather than gambling that the Chinese would make some last-minute concession.

Related Articles

Closeup of the flags of the North American Free Trade Agreement NAFTA members on textile texture. NAFTA is the world's largest trade bloc and the member countries are Canada, United States and Mexico. 3D rendering with detailed textured grunge effect on closeup.
USA and trade war concept

So by the time you read this, either history has been made or it may be close.

Probably the most important news coming out of late-term negotiations was that the Chinese were regarding — and we’re assuming telling the folks back home — the significant structural changes they were agreeing to were steps to open up China’s economy to the rest of the world. That actually is true but that they have settled on an explanation that involves no loss of face is critical to the success of the deal.

Into late stages of negotiations, only the status of intellectual property protection and overall enforcement mechanisms were still being thrashed out. Hormone or ractopamine restrictions on beef were still on the table.

Pork producers here in the U.S. are wishing Congress would get its act together and pass the USMCA very soon, as the lack of sales to Mexico because of retaliatory tariffs has been very damaging. The lack of sales to China has also been hurting. But the impact of African swine fever (ASF) has finally forced the Chinese to buy over 23,000 tons of pork in early March, despite a 62 per cent tariff, Reuters reported. That’s the biggest purchase in two years. The official ASF count is 111 cases in 28 provinces in China. The official count of pigs culled is one million but is estimated by outsiders as many times that number.

Whatever that number is — and climbing — the Chinese will eventually need a lot of pork. As the largest pork producer in the world, just a 20 per cent drop in production for them would equal 50 per cent of U.S. production, Scott Brown said. Brown is extension economist at the University of Missouri. China has been getting 70 per cent of their pork from the EU during the trade war but that could shift quickly if ASF spreads from eastern Europe into Western Europe, noted Don Close of Rabo AgriFinance. Both appeared on the April 6, 2019 episode of U.S. Farm Report.

The potential Chinese purchase needs could not only support pork prices in North America but ease any competitive price pressure on beef from cheaper pork prices. In the U.S., we’re heading into prime grilling season, which should help demand, but getting more pork exports in gear would certainly help.

Congressional sources are not expecting any vote on USMCA until midsummer, despite the damage on U.S. farmers from having retaliatory tariffs on Mexico and China. Should the vote be delayed or worse, the treaty voted down, prices for pork could plummet and beef prices take a hit. Beef exports have increased enough elsewhere in the world that it has escaped major effects.

The U.S. Meat Export Federation reported that U.S. beef exports to Mexico were up eight per cent, in spite of the tariffs, while pork exports to Mexico were down 13 per cent. Pork exports to Canada were down four per cent and beef exports were down six per cent.

Pork exports to China were down 21 per cent in 2018 and started 2019 off 20 per cent.

Neither Canada nor Mexico has been happy with the U.S. steel and aluminum tariffs still being in place. The indications originally were that they would be lifted when the USMCA was signed. That changed into when the treaty was passed. Negotiations are still ongoing and some kind of quota system has still been mentioned. But President Trump has apparently grown more comfortable with at least some kind of restriction on steel and aluminum imports.

The impact of the flooding in Iowa and Nebraska will not have a huge national impact on markets, despite the severe local effects. But much of the Corn Belt experiencing very wet weather could have more impact on corn prices if planting is delayed.

Bottom line: The prospect of a Chinese-American trade deal and ASF hold major potential for the beef world.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

Comments

explore

Stories from our other publications