US-China Trade Relations Ease—for Now

Trade tensions between China and the US appear to have lessened, at least for now. But the market remains uncertain, with soybean futures rising only slightly in intraday trading on the news. After a dinner meeting between President Trump and Chinese President Xi Jinping at the G-20 Summit in Argentina this past weekend, it was announced that China would begin to purchase agricultural products from the US “immediately” in response to the US withholding a proposed tariff rate increase. However, purchases cannot be made until China lifts its 25 percent duty on US products like soybeans, so for the time being nothing has changed. And if no deal is reached within 90 days, the US will impose the new round of tariffs.

Two US agricultural sectors hard hit by the trade war are the pork and soybean industries. Top global pork consumer China halted most imports of US pork products, dropping US exports to well below 1,000 tonnes per week since mid-April of this year. This, coupled with the effects of hurricane Florence in major pork-producing regions, has greatly affected the US pork industry.

China also purchases a large amount of US soybeans to use for animal feed in their booming livestock industry. But soybeans were subject to China’s retaliatory tariffs as well, and export value of US soybeans to China for fiscal year 2019 are now forecast at $18.7 billion, down from August’s prediction of $21 billion. US farmers are hoping to find some relief from the easing trade tensions, but it does not appear that China has need for a substantial amount of US soybeans anytime soon: The country has built up a stockpile of soybeans through large purchases from Brazil, and its ongoing struggles with African Swine Fever have reduced its domestic demand.

US pork (right chart) and soybean (left chart) industries saw exports slashed as China imposed 25-percent retaliatory tariffs on many agricultural products. The ongoing trade war between the two economic powerhouses appears to be easing, but if a deal isn’t reached in the next 90 days, the US may still enact higher tariffs.