US, China Close on Trade Deal

Source: By  Chris Clayton, DTN Ag Policy Editor • Posted: Friday, December 13, 2019

Ag Secretary Perdue Highlights Potential ‘Bonanza’ for Ag Sales if China Follows Through

 Agriculture Secretary Sonny Perdue spoke to reporters Thursday in downtown Omaha. Perdue didn't have up-to-the-minute details on trade talks in Washington, but the secretary said up to $50 billion in agricultural sales to China would be a "bonanza" if they came to fruition. (DTN photo by Chris Clayton)
Agriculture Secretary Sonny Perdue spoke to reporters Thursday in downtown Omaha. Perdue didn’t have up-to-the-minute details on trade talks in Washington, but the secretary said up to $50 billion in agricultural sales to China would be a “bonanza” if they came to fruition. (DTN photo by Chris Clayton)

OMAHA (DTN) — With a Dec. 15 deadline looming, President Donald Trump on Thursday reportedly agreed to delay a new round of 15% tariffs on $160 billion in Chinese consumer exports to the U.S. The president tweeted optimistically Thursday morning that a major trade deal could be reached, saying “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”

By mid-to-late afternoon Thursday, multiple news media were reporting the president had agreed to terms on a limited phase one deal. Yet, Trump’s Twitter feed remained quiet and the White House had not released any statements or details.

Chinese officials in recent weeks have repeatedly called on the U.S. to remove existing tariffs ranging from 10% to 25% on as much as $360 billion in Chinese exports as the two sides move toward a limited deal that would include boosting U.S. agricultural exports. Chinese officials just last week agreed to temporarily allow private companies to import U.S. pork and soybeans without retaliatory tariffs placed on them.

OFFER TO CANCEL NEW TARIFFS

The Wall Street Journal reported Thursday the latest U.S. offer involved canceling the new round of tariffs and cut the current tariffs in half on Chinese goods as a way to advance the first phase of the deal.

Agriculture Secretary Sonny Perdue was missing trade talks at the White House as he spoke Thursday morning in downtown Omaha then toured a couple of sites in eastern Nebraska and western Iowa. Speaking to reporters Thursday, Perdue said he was not updated on the latest information, but he was encouraged by news he was hearing coming out of Washington. “We’re hoping those kinds of things happen. That’s been the president’s goal and that sounds very encouraging.”

CORE ISSUES

Perdue added that core issues in trade talks between the U.S. and China have not changed. “China knows exactly what we’ve asked for — to restructure their economy in a way that doesn’t have these state-owned enterprises doing these market distortions, to not have forced transfer of intellectual property, and to play by the international rules in a way that we can count on and do what you say. That’s really what we’re talking about and I hope China can get there.”

Speaking to attendees at the Farmers Business Network conference, Perdue said it would be “a real bonanza” if China were to follow through and buy $40 billion to $50 billion in agricultural products from the U.S. That’s roughly double what China bought from the U.S. at its peak.

“A broad spread of sectors are going to benefit from a China deal if we’re able to get that done,” Perdue said as his comments drew applause from the crowd.

Perdue credited Trump for pushing back on the relationship with China, and the problems created by China’s state-owned enterprises and theft of intellectual property. “We’ve been in an economic war with China for 20 years, we just didn’t know it,” Perdue said.

While such agricultural sales would be positive for the industry, Perdue said of any deal with China, “It’s got to be enforceable and it’s got to be achievable, and that’s what (Trade) Ambassador (Robert) Lighthizer and President Trump are insisting upon.”

PAYMENTS NEED APPROVAL

Looking at trade aid, Perdue said the next tranche of Market Facilitation Program payments could go out in early January, but first must be approved by the White House Office of Management and Budget. “They (OMB) were very helpful in the second tranche that we got out before Thanksgiving and we don’t see a market move that would make it not needed for the third tranche after the first of the year,” Perdue said.

Regarding 2020, Perdue said he was not making any commitments about another set of Market Facilitation Program payments for the 2020 crop year. He also encouraged farmers to focus on market opportunities for crops and not look for trade-aid payments to be an annual entitlement.

“I’m going back to what farmers told us on the program after the first one,” Perdue said. “I’d rather have trade than aid as well. If we can get a deal with China, if markets move, if we can accumulate these trading relationships we have and we can get back to a more stable trading relationship, I would be hopeful we wouldn’t need a third Market Facilitation Program. My advice to farmers every year is to look at markets every year, make their planting decisions as they would, not expecting anything. I certainly don’t want our farming community … expecting an entitlement to Market Facilitation Programs on an annual basis. I think that would not be a good move to do that.”

OTHER TRADE HIGHLIGHTS

Speaking at the Farmers Business Network event, Perdue highlighted some of the other major trade successes and ongoing negotiations within the Trump administration. Perdue said “line by line” the U.S. Mexico Canada Agreement (USMCA) is an improvement over the North American Free Trade Agreement, even though farmers were among the groups most loyal to the benefits of NAFTA. USMCA addresses some technology issues that didn’t exist in the early 1990s.

“I consider it a promise kept to make the American economy great again and we see this in this economy,” Perdue said. “I imagine one of your issues is trying to find labor in this market of 3.5% unemployment. It’s not just agriculture, it’s everywhere. We applaud the booming economy and hope it will continue.”

Perdue also told reporters that impeachment has been a distraction and it has caused House Democrats to delay action on USMCA. The trade deal is now expected to go to the House floor next week for a vote, after the House votes on articles of impeachment. Still, Perdue said he was pleased House Speaker Nancy Pelosi, D-Calif., is moving ahead on a USMCA vote.

“It’s been a distraction and it’s frustrating to have an issue like USMCA out there and what have we been doing in Congress for the last months? That agreement has been there on the speaker’s desk for a number of months. I am happy for her to finally announce — I couldn’t imagine her sending her members home for Christmas break without passing USMCA.”

Perdue also highlighted the bi-lateral agreement with Japan that lowered or eliminated tariffs on 90% of agricultural goods going into Japan, and puts the U.S. on an even playing field with other Japanese trading partners. Further, implementation of a trade agreement with South Korea has expanded access for U.S. agricultural products as well.

WILL GRAIN TRADE RETURN?

Regarding whether the grain trade will return once the U.S. and China sort out their differences, Perdue told reporters he thinks trade is based on value so U.S. exporters will be fine.

“If we are allowed to compete fairly and favorably in the world trade, I think we can certainly compete with our South American neighbors or anywhere in the world. That’s been the challenge. Our farmers have suffered a protectionist wall while China has been courting Brazil and others while we have had these trade disruptions there through infrastructure and other promises. But I can assure you if we get a level playing field, we can get the markets back.”

USDA also has extended enrollment for MFP payments and the Dairy Margin Coverage program to Dec. 20. Perdue said there were some problems at USDA sending out postcards that caused some delays and prompted USDA to extend enrollment.

Under the first two of three possible tranches of MFP 2 payments, FSA has paid $10.470 billion in MFP payments to farmers. The top five states were Iowa, Illinois, Minnesota, Texas and Kansas.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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