There’s some ambiguity around how much of the blame for the Hong Kong bill(s) Beijing is prepared to place with Donald Trump.
After all, he didn’t have any choice other than to sign the legislation, which had a veto-proof majority on the Hill. Sure, Trump could have made a public show of refusing to go along with the measures, but it wouldn’t have mattered from a practical perspective, and it would have made for terrible optics. Besides, had he refused to sign the bills into law, Trump would have likely irritated the Senate at an inopportune time.
Given that reality, it’s possible Beijing gives Trump a pass, even as state media and various ministries decry the legislation. More to the point, it’s possible the Hong Kong bills won’t derail the trade talks at a time when market participants have clearly adopted the postponement of the planned December 15 escalation as their base case. Risk assets are likely priced for tariff rollbacks too.
But even if the Hong Kong bills need not necessarily be a stumbling block, there’s no shortage of hurdles. Indeed, we learned earlier this month that even the purportedly “easy” discussion around farm purchases is somewhat contentious.
On November 13, media reports suggested those talks had hit a rough patch. Although Trump has variously insisted that part of the “Phase One” agreement will involve Beijing committing to purchase as much as $50 billion annually in US soybeans, pork and other agricultural products, it was never clear whether that was feasible, especially given the logistical constraints associated with China’s retaliatory tariffs.
Beijing has extended some 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”.
Beyond that, 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.
As the trade talks drag on and the December 15 deadline on new tariffs draws near, there’s more than a little lingering skepticism about the promised farm purchases. “China has never purchased anything close to $40-50bn per year of agricultural products from the US even before the trade war escalation”, Credit Suisse wrote Friday, for example. Here’s a visual which, frankly, suggests that Trump is delusional.
“A reversal to the pre-escalation level is feasible, or even a higher amount per year might be agreed upon by the Chinese given that China has decreased its agricultural imports from the US so it may have an appetite to make up for lost ground”, the bank goes on to say, before cautioning that their “educated guess is that anything beyond $30bn per year is unlikely to be sustainable beyond one or two years”.
And that may be fine, because the chances of Trump making three more years as president without doing something so egregious that the Senate decides to remove him, seem pretty slim, and that assumes he wins a second term.
Now, you might be asking yourself: What about pork? Doesn’t China need more pork right now? After all, pork problems are the reason why the following chart looks like it does:
The issue with pork imports is, according to Credit Suisse anyway, that it simply isn’t possible to make a dent in the gap between reality and Trump’s target range with meat alone.
“Even in 2012, when China made record purchases of US agricultural goods, China only bought about $1.34bn worth of goods classified as ‘meat and meat preparations'”, the bank notes. “Even doubled or tripled, [that’s] simply not a meaningful amount when the US is asking China to go from around $10bn in 2019, to $40-50bn in 2020”.
Right. So, what about soybeans?
Unfortunately, that won’t work either.
“China only imported $3.1bn soybeans from US in 2018 compared to the $14.9bn peak in 2012”, Credit Suisse goes on to remark, before breaking the bad news, which is that even if you assume imports of soybeans go back to their historical peak, it “would not get China imports anywhere close to the $50bn per year mark”.
Of course, China could divert imports from other countries to US products, and there’s some scope for that given the recent shift in destinations necessitated by the trade war. But that would be problematic for a number of reasons, not least of which is that farmers in other locales would effectively become collateral damage and besides, China would likely need to shift some $20 billion of farm product purchases away from other countries in order to hit Trump’s mark. That’s far-fetched.
The message is clear: The numbers Trump is touting aren’t realistic or, even if China can hit them for a year or two, aren’t feasible over the longer-term.
Little wonder, then, that Beijing has been reluctant to commit to an actual number as part of the “Phase One” deal.
This isn’t a problem for America’s richest farmers, who have benefited disproportionately from the farm bailouts. But for the everyday planter, it might be a good idea to take the advice of Xi’s chief propagandist Hu Xijin who, earlier this month, said this:
So a friendly reminder to American farmers: Don’t rush to buy more land or get bigger tractors.