We continue our weekly coverage of the US-China tariff issue with a focus on recent developments in agriculture. Recent Developments A June 18 phone call between US President Donald Trump and Chinese President Xi Jinping to discuss a meeting during the G20 summit gave hope for a resolution, especially after the meeting happened on June 29, resulting in an apparent cease-fire and resumption of trade talks. Under the terms of the cease fire, the countries agreed:

• No additional tariffs on the $300 billion worth of Chinese goods that had been identified as the target for additional tariffs.
• No additional tariffs on the $250 billion of imports from China already subject to a 25% tariff.
• The US stance on Huawei may soften: US president Trump said at the G20 press conference that US companies can continue to sell to Huawei “where there is no great national emergency problem.” However, it remains unclear whether the existing ban will be reversed.
• Purchase of US agricultural products: According to Bloomberg, China may consider increasing its purchases of US agricultural products, such as soybeans, pork and corn – but qualified that the total volume will depend the progress of trade talks. According to the US Department of Agriculture, on June 28 China agreed to pay $200 million for 544,000 tons of sybeans, a day before the Xi-Trump meeting.

On July 4, state media Xinhua News reported that a spokesperson from the Ministry of Commerce said that any final agreement must include lifting all existing tariffs, but the US has said some tariffs must remain as an enforcement mechanism. While the current cease-fire gives hope, there is still much uncertainty and not much clarity about what the next steps would be and how they might lead to resolution. Impact of Tariffs on Agriculture US Department of Agriculture (USDA) figures show China has been the top buyer of US agricultural products from 2010-2017, buying over $21 billion a year. In February 2019, the USDA predicted the total value of all US agricultural exports would decline $1.9 billion to $141.5 billion in 2019, mainly due to falling exports to China. “The share of total US agricultural exports to China in value terms is projected to be 6%, down sharply, with China falling from the top market in 2017 to fifth place,” USDA Chief Economist Robert Johansson told the USDA annual forum in Washington in February 2019. In May, President Trump promised a package of assistance worth of over $15 billion to US farmers, the bulk of which will be spent on direct payments, according to the USDA briefing. Soybeans Soybeans are one of the most important farm exports for the US and China has emerged as the second largest market for US soybeans. According to the Financial Times, US soybean shipments to China hit a 16-year low in 2018, after the announcement of tariffs. USDA Chief Economist Robert Johansson told a USDA annual forum that close to 25 million metric tons, or about 27.5 million tons, of US soybeans would go unsold in 2019 as a direct consequence of the trade dispute. Although sales of US soybeans to other areas including the EU, Egypt, Argentina and others have risen, this “has not been enough to make up for the lost exports to China,” according to Johansson. Pork China’s imports of pork from the US fell by half to about 263,000 tons in 2018 after China’s June 2018 announcement to impose tariffs on agricultural imports from the US. According to Reuters, the 55% percent fall was across both quality cuts of meat and offal, categories in which the US had previously accounted for about a third of China’s imports. The challenge is especially acute for non-prime cuts: China is the biggest buyer of US pig feet — 9 out of every 10 pig feet US processors exported in 2017 went to China. China also imports other parts such as ears and elbows, which provides an additional source of revenue for US processors as demand for such products would be weak at home. Implications for the Market Chinese consumers are upgrading food choices. The number of new retail outlets and supermarkets in China featuring imported food are expanding. [caption id="attachment_92603" align="aligncenter" width="700"] Imported beef from Australia, imported pork and seafood in Aldi, Shanghai
Source: Coresight Research [/caption]   Yang Yang, Vice President of China Huayang Economic and Trade Group, a large state-owned company, told Coresight Research that demand for high-quality food is on the rise in China, especially for imported premium grass-feed beef, chicken, grains and fruits. The Chinese government currently subsidizes trading companies that import from countries participating in the Belt & Road Initiative, or from countries that have bilateral trade agreements with China. Not only could US agricultural exporters lose sales during the trade dispute, they could lose the market altogether as other countries step in the fill the need. For example, in December 2018, China and Argentina reached a bilateral trade agreement and signed 30 agriculture and investment deals. China is the number one market for Argentine agricultural products and Argentina send half of its beef exports to China. Negotiations on exporting Argentine mutton, cherries and honey to China were expedited as well. At the same time, China has cut tariffs on agricultural products from other countries: So as US products become more expensive, those from other countries are getting cheaper. On average, it is now 14% cheaper to buy imports from Canada, Japan, Brazil or Europe than it is to buy from the US. The challenge is that as more time passes, the damage to US exporters could become more difficult to reverse. “Trump’s tariffs might be a time-limited event, but the change in trading patterns they prompted for China may persist long after the trade war is over,” said Alfred Evans, founder and CEO of Islan Investments speaking to Business Insider.