Coronavirus Creates Trade Deal Uncertainty

There is still strong potential for the U.S. and China to uphold the first phase of the trade deal, but delays are likely

March 18, 2020, 1:11 pm | Wendong Zhang

AMES, Iowa – With planting season just weeks away, news of the coronavirus has farmers wondering what to expect in the marketplace and how it might impact the recently announced phase one trade deal with China.

According to the deal, China has agreed to buy $12.5 billion in U.S. agricultural products in 2020, and $19.5 billion more in 2021. Recent world events have caused uncertainty as to when those shipments will begin, and whether the targets will be met.

“The farmers are hopeful, but they want to understand how the phase one deal will impact their income and export potential, and the coronavirus adds significant uncertainty” said Wendong Zhang, an assistant professor and extension economist with Iowa State University Extension and Outreach.

unloading soybeans into truck.In an article he co-authored for The Conversation – an independent and nonprofit source of news analysis from academic experts, Zhang says China can still make the purchases noted in the deal, at least for the year 2020, but current events will make doing so more challenging.

“A resilient and recovering Chinese economy means the country can comply with the trade deal and potentially minimize damage to the U.S. economy from an ongoing trade war,” according to the article, which also adds, “Make no mistake. These disruptions have been profound.”

New restrictions in China and the U.S. have led to significant reductions in Chinese imports, according to Zhang, with the possibility that the start date for the phase one deal could be pushed back from February, to late April or May. The rapid spread of coronavirus in Europe and the U.S. makes Chinese buyers even more cautious regarding overseas personnel and cargo flows.

In the article, which Zhang co-authored with Tao Xiong, professor of agricultural economics at Huazhong Agricultural University in China and a visiting scholar at the Iowa State Center for Agricultural and Rural Development, the authors say another factor affecting trade is market prices.

The phase one deal allows Chinese agricultural purchases to be based on market prices and commercial considerations, rather than quarterly purchase targets or commodity-specific purchase contracts. This provision gives China more flexibility with what it purchases, according to the article. For example, China recently bid on U.S. sorghum.

Zhang said there is reason for U.S. producers to be optimistic, including China’s own post-coronavirus recovery and increased demand for pork and other proteins, due mostly to the devastating effects of African swine fever.

“Once life returns to normal, as the coronavirus outbreak slows globally, I think the orders and shipments will slowly ramp up. But the coronavirus will definitely be a hard hit,” Zhang said.

 

Original photo: Unloading soybeans.

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