Not surprisingly, China still isn’t sure whether it makes sense to commit formally to Donald Trump’s lofty targets for farm product purchases.
US equity futures quickly trimmed gains on Friday morning ahead of the open after CNBC’s Eunice Yoon said Beijing still has concerns about pledging to hit “hard targets”.
Amusingly, Beijing reportedly agreed to buy $40 billion in agricultural goods, but Trump decided to counter (because he’s still under the impression that this is a real estate deal), pushing for a number “closer to $50 billion”. As a reminder, the feasibility of these numbers is highly questionable.
One worry, according to Yoon, is that purchases of that magnitude could alienate China’s other trading partners – countries it would need to lean on again in the event Trump were to reimpose tariffs.
We’ve been over this before. Take soybeans, for example. Instead of buying from the US, China has increased purchases from Brazil, something Trump appeared to take issue with earlier this month, when he lambasted the country (along with Argentina) for “presiding over a massive devaluation of their currencies which is not good for our farmers”.
“Comparing 2012-2017 average to the 2018 level, total agricultural imports into China increased by $20.1 billion while imports from the US (which include soybeans) decreased by $9 billion”, Credit Suisse wrote, in a note last month, adding that “Brazil, as the largest single-country agricultural products exporters to China, received the lion’s share of the re-directed demand”.
(Credit Suisse)
Given Trump’s penchant for changing his mind and otherwise being a wholly unreliable counterparty, one can hardly blame the Chinese for being wary. After all, what happens if Trump goes back on his promises and dreams up an excuse to reimpose tariffs? If China has undermined their relationships with other suppliers, their ability to access critical markets could be at risk.
“For China to increase its imports from the US to a level beyond that of pre-trade-war peak, it would have to substitute away from other importing destinations”, Credit Suisse wrote, in the same note cited above. “Hypothetically, China needs to shift at least $20 billion of agricultural imports to the US to get anywhere close to the $40-50 billion level currently demanded” by Trump, the bank said.
That is the heart of the problem.
China will apparently hold a press conference today on the state of the discussions. “Chinese authorities and official media so far haven’t given any information on China and the US [being] close to a deal”, Global Times editor Hu Xijin said. “As the US side released optimistic information through various channels, the Chinese side has basically kept silent. This is a delicate situation”, he added.
“Yesterday, we expected statements from the White House and the USTR on the China trade agreement and possible signing by [the] Chinese ambassador by week’s end”, CNBC’s Kayla Tausche remarked on Friday morning. “Today, radio silence from both sides”.
5) One big reminder I got today: Communist Party derives legitimacy from economic performance. Xi and other leaders in big meeting this week looking for ways to stabilize slowdown into 2020. One Chinese scholar told me better to take deal now, “push difficulties to the future.”
— Eunice Yoon (@onlyyoontv) December 13, 2019
