The U.S. and China reached agreement on Phase 1 of a new trade deal late last year, but with spring planting just weeks away and the COVID-19 pandemic tightening its grip on the global economy, farmers are wondering what to expect in the marketplace and how it might impact the terms of the trade deal.
Based on the terms of the agreement, China agreed to buy $12.5 billion in U.S. agricultural products in 2020, and $19.5 billion more in 2021. However, the global pandemic caused uncertainty as to when those shipments will begin, and whether the targets will be met.
“Here is what we do know. In the trade agreement, there are clauses in multiple areas,” said Frayne Olson, crops economist and marketing specialist for North Dakota State University Extension. “Because the agreement laid out a lot of new relations — guidelines on how we’re going to trade back and forth — like any contract, you can’t anticipate all the issues and problems caused by things going on.”
Within the agreement, a procedure is laid out for both the U.S. and Chinese negotiators to meet on a regular basis to work through the mechanics of implementing the agreement, according to Olson.
“There are clauses built into the agreement in case something unforeseen happens, either on the U.S. side or the Chinese side, which would cause the need to adjust the agreement,” he said. “There’s a process in place to work through that. So far, there has been no formal announcement from either side saying, ‘Yes, we’ve got to go into that mode.’”
Now that coronavirus has hit both countries, the question is whether or not there is a scenario where China drops out of the deal all together. Olson doesn’t foresee that happening, but said the two sides could potentially need to modify the agreement to compensate for the current conditions.
“I have not heard of any discussion, yet, about going into any renegotiation mode to amend the base agreement,” he said. “Personally, as an observation, I would not be surprised if we do that, just because of the severity of the pandemic and the implications for both the U.S. and Chinese economies.”
Agriculture is just one area where China agreed to increase purchases. Others include energy, manufactured goods and services.
“For China to meet the dollar amounts for the increase in agriculture purchases, it’s still possible,” Olson said. “It’s getting more difficult as time goes by, but it’s possible. To meet the targets for manufactured goods, energy products and services is going to be much more difficult because the dollar volumes are much higher. The bottom line is we don’t know.”
As March came to a close, Olson had yet to hear any formal requests on either side to make amendments or changes to those targets, and he stressed that any amendments wouldn’t mean they’ll drop to zero.
“There’s a thought out there that because there’s an Act of God that this contract could be null and void, and that’s not the case,” he said. “All the agreement says is that they’ll renegotiate, and that’s what the expectations are.”