It was inevitable.
After weeks of positive news flow around the “Phase One” trade agreement between the US and China, market participants knew it was just a matter of time before things hit a “snag”. Indeed, recent rhetoric from Donald Trump seemed to suggest that good vibes notwithstanding, the deal was far from sealed.
Sure enough, on Wednesday afternoon, the Wall Street Journal reported that the discussions have hit a rough patch, apparently over farm purchases.
Trump has variously insisted that part of the “Phase One” agreement will involve Beijing committing to purchase some $50 billion annually in US soybeans, pork and other agricultural products, but it was never clear whether that was feasible, especially given the logistical constraints associated with China’s retaliatory tariffs.
Beijing recently extended waivers in order for domestic buyers to purchases US farm goods, but as Bloomberg noted last month, “waivers are seen as being impractical for volumes as large as $50 billion a year”.
Now, China is said to be wary of assigning an actual value to the commitment. In other words, Beijing doesn’t want the text of the agreement to include a number.
Needless to say, that’s not ideal for Trump. Although the president does have an affinity for nebulous balderdash, this is one case where he really needs to have a concrete figure he can point at, otherwise the door is open to China waffling.
It’s also worth noting that farm purchases were supposed to be one of the least controversial parts of the deal. It doesn’t say much for where things stand if the two sides can’t even agree on that.
China is also said to be concerned about striking a one-sided deal, and is angling to have a way out of the agreement in the event Trump decides to escalate things anew.
The unwelcome news comes just 24 hours after Trump told an audience in New York that “if we don’t make a deal, we’re going to substantially raise those tariffs”.
Last week, the president made repeated reference to the possibility that the deal may not go through, although he was careful not to push the envelope too far at a time when US stocks have summited new peaks.
Beijing insists that without tariff relief, no deal is possible.