Projected export flows under the “phase one” deal.

Projected export flows under the “phase one” deal.

Editor’s note: The following was written by Chad Hart and Lee Schulz, Extension economists with Iowa State University, for the Iowa State Agricultural Policy Review.


There have been a number of agricultural market movers over the past year, however, most of these movers cancel each other out. Weather problems limited supplies and pushed prices higher, but the trade disputes and tariffs limited usage and offset the price impacts.

With the passage of the USMCA and the signing of trade deals with China and Japan over the past few months, there is some positive news on the trade front. But as the market reaction to the U.S.-China trade deal signing indicates, agricultural markets are not interested in the political deals, but in actually seeing trade flows change.

The USMCA and Japan agreements concentrate on solidifying existing trade flows rather than significantly expanding trade opportunities. The China deal, on the other hand, has the potential to radically change global trade flows.

To see why, it is important to understand the current agricultural export picture.

The phase one deal alters the agricultural trade landscape — China has agreed to specific targets for agricultural purchases for this year and next year. The deal uses 2017 as the base year for trade, when Chinese agricultural purchases totaled roughly $19.5 billion.

For 2020, China agreed to purchase $12.5 billion more in agricultural products than it did in the base year, which puts 2020 U.S. agricultural exports to China at $32 billion (other publications report higher amounts, but they are including forestry and ag-related products, such as infant formula and pet food).

For 2021, the agreement is $19.5 billion more than the base year — $39 billion in agricultural sales to China. These two targets alone guarantee a significant surge in sales to China, far eclipsing the record sales from 2012.

The text of the deal also includes a statement indicating that the growth in U.S. agricultural exports to China set in these two years is projected to continue through 2025. If projections from the deal are accurate, agricultural trade with China will grow to exceed what the United States currently ships to its free trade partners or to the rest of the world.

Traders are sorting through three big questions right now. One, will China follow through on these commitments over the next two years and what mix of products will they choose? Two, how secure are those projections for continued agricultural trade growth beyond 2021? Three, what happens to our other markets?

It is likely China will meet the value targets for the next two years as the African swine fever there has created a significant protein gap for China. The deal contains language easing trade rules for meats between the two countries, so it makes sense that China would expand meat purchases from the United States, fulfilling two objectives at once — filling in the protein gap and meeting trade targets.

While soybeans were the largest portion of previous agricultural sales to China, we expect meat, especially pork, to take the leading spots in our future sales to China. Thus, the product mix will shift, moving to more value-added products, which helps China hit the dollar value targets.

Sales beyond 2021 are not locked in place. If the projections hold, they imply significant shifts in global trade flows — U.S. agriculture will become even more reliant on Chinese demand.

A large concern is what will happen to our other markets. This deal will likely crowd some of them out. China has agreed to buy more agricultural products, but that does not mean we can add that value to total exports. In fact, we are currently already seeing the potential for crowding out.

Over the past few months China has re-established itself as the top market for U.S. soybeans. As China has moved back in, however, numerous other markets have reduced U.S. soybean imports. Sales to the European Union, Mexico, Japan, Indonesia, South Korea and Canada have fallen.

With trade, there can be significant slippage — gains in one area are often offset by losses elsewhere. In this case, forcing sales to China will likely cost us open sales to the rest of the world.