At his rally in Iowa, President Donald Trump falsely claimed that the new trade agreement with China “will boost American agriculture by $50 billion every year.” China agreed to increase agricultural purchases by $12.5 billion this year and $19.5 billion next year compared with 2017 levels.
The trade pact does say that both parties “project that the trajectory of increases” will continue through 2025, so it is possible that China could purchase $50 billion a year in U.S. agricultural products in 2023, Chad E. Hart, an associate professor of economics and crop markets specialist at Iowa State University, told us. But there is no requirement that China increase purchases beyond 2021, he said.
“When you look at this deal it locks in hard targets for this year and next year, but it does not guarantee anything beyond that,” Hart said.
Trump made his remarks at a political rally in Iowa, where Republicans and Democrats will caucus on Feb. 3 to select their choice for their parties’ nominees. During the rally, the president frequently mentioned Phase 1 of the trade agreement that China and the U.S. signed on Jan. 15.
The president exaggerated the impact of the deal with China.
Trump, Jan. 30: [W]eeks ago we also signed a terrific new trade agreement with China that will boost American agriculture by $50 billion every year, and many other businesses like manufacturing, banking, finance, overall $250 billion.
First of all, the agreement says that the total package is $200 billion over two years — not $250 billion a year, as Trump implied.
Trade agreement, Jan. 15: During the two-year period from January 1, 2020 through December 31, 2021, China shall ensure that purchases and imports into China from the United States of the manufactured goods, agricultural goods, energy products, and services identified in Annex 6.1 exceed the corresponding 2017 baseline amount by no less than $200 billion.
A senior administration official also made that point at a background press briefing on the trade deal on the day it was signed.
“China has committed to increase its purchases of U.S. goods and services by $200 billion over the next two years,” the official said.
The president also exaggerated the impact of the deal on U.S. farmers, who have been perhaps the most affected by the trade war Trump initiated with China in 2018.
In the first year of the trade war, U.S. agricultural exports to China dropped in 2018 to $9.2 billion — the lowest since 2007 and 57% below the $21.4 billion in exports to China in 2016, the year before Trump took office, according to the U.S. Department of Agriculture.
Many farmers, however, stuck by Trump with the hope that his trade deal would ultimately reap them benefits. China has now made a commitment to increase its purchases of U.S. agricultural products — but not by as much as Trump claims.
Trade agreement, Jan. 15: For the category of agricultural goods identified in Annex 6.1, no less than $12.5 billion above the corresponding 2017 baseline amount is purchased and imported into China from the United States in calendar year 2020, and no less than $19.5 billion above the corresponding 2017 baseline amount is purchased and imported into China from the United States in calendar year 2021.
The value of U.S. agricultural exports to China was $19.6 billion in 2017, Hart, the Iowa State University professor, told us and USDA data show. That year was the last full year of trade before the trade war began. That means total agricultural exports to China in 2020 and 2021 won’t add up to $50 billion a year, Hart said, let alone “boost American agriculture by $50 billion every year.”
“The document says $12.5 billion this year and $19.5 billion next year, and that would put [agricultural exports] at $32 billion this year and $39 billion next year,” Hart told us in a phone interview.
Hart said it is possible that total U.S. agricultural exports to China could reach $50 billion a year in future years.
The Iowa State professor pointed to a section in the trade agreement that says, “The Parties project that the trajectory of increases in the amounts of manufactured goods, agricultural goods, energy products, and services purchased and imported into China from the United States will continue in calendar years 2022 through 2025.” Assuming an increase of $7 billion each year, Hart said, “We could be up to $50 billion by 2023 … by 2025 you’re looking at $67 billion in agricultural trade.”
But Hart noted that the “trajectory of increases” is a mere projection, not a commitment.
“The key word is ‘project,'” Hart said. “This says that it could happen. They think it might happen. But it is not required to happen.”
In fact, he said, there are other provisions in the agreement that could allow China not to fulfill even its trade commitments.
The agreement says China and the U.S. “acknowledge that purchases will be made at market prices based on commercial considerations and that market conditions, particularly in the case of agricultural goods, may dictate the timing of purchases within any given year.”
“That means if the market doesn’t support it,” then the purchasing commitments may not happen, Hart said.
The deal also gives China the ability to renegotiate its commitments. It says: “If China believes that its ability to fulfill its obligations under this Chapter is being affected by an action or inaction by the United States or by other circumstances arising in the United States, China is entitled to request consultations with the United States.”
Hart also questioned if the Chinese market could absorb such large increases in projected trade, particularly in 2021 and beyond. As we’ve written before, the most China has purchased in U.S. agricultural products was nearly $26 billion in 2012.
“It is hard to create a story line that is easy to get there,” Hart said of China purchasing $32 billion in U.S. agricultural products this year and $39 billion next year. “It probably takes the government of China to step in and make some purchases [for 2020], but it’s hard to imagine getting to 2021 target without significant government intervention.”
For example, it can be done, Hart said, if China increases its purchases of high-value products, such as pork, beef, poultry, fruits and vegetables. China needs to import more pork products, Hart said, because of the outbreak of swine fever that is killing pigs in China. That, however, reduces China’s need for soybeans, which are used as feed for China’s domestic pigs. (In 2017, China purchased more than half of U.S. soybean exports.)
The bottom line, Hart said, is that U.S. farmers won’t know the impact of the new trade agreement until the end of this year. What we do know is that the deal won’t “boost American agriculture by $50 billion every year,” as Trump said, and there is no language in it that requires China to purchase a total of $50 billion a year.