U.S. trade with China boosting ag exports to record levels

Date:01-04-2022

By Martha Blum

U.S. agricultural exports are at record levels.

“We’ve had record exports at over $175 billion,” said Amanda Countryman, assistant professor in agriculture and resource economics at Colorado State University. “One of the big reasons is our increased trade with China from the Phase 1 trade deal.”

In addition, the weak U.S. dollar also helped to increase exports during the first part of the timeframe for the agreement, said Countryman during a Farm Foundation Forum.

“The appreciation of the dollar starting in the summer of 2021 is largely driven by challenges in Europe related to COVID-19 with government closures of industry and business,” Countryman said.

“What’s interesting about the U.S.-China Phase 1 deal is that when it went into place in September 2020, tariffs were cut in half, but the previous tariff rounds remained,” she said. “So, there is still a lot that remains to be accomplished to improve U.S.-China trade relations.”

Through the deal, China made purchase agreements for U.S. agriculture, manufacturing, energy and services for more than $200 billion over two years.

“There are also some reductions in non-tariff measures that prohibited trade related to safety, some improved foreign investment measures, intellectual property protection and some commitments related to currency by China,” Countryman said.

“When we think about a potential Phase 2, I believe the focus is going to be a lot on state-owned enterprises which weren’t really tackled during the Phase 1 deal,” the university professor said.

“The Phase 1 deal really set the stage for unprecedented exports to China across agricultural commodities,” she said. “We’ve had tremendous growth in U.S. exports of agriculture beyond what would have been expected from export trends and the growth in Chinese GDP.”

However, Countryman said, there are still substantial tariffs in place on U.S. exports to China.

“There are over 20% tariffs on U.S. exports to China and 19% on U.S. imports from China,” she said. “Chinese tariffs on average for exports with the rest of the world are a little over 6% while U.S. tariffs for the rest of the world exports are about 3%.”

As of October 2021, she said, China has purchased 62% of its commitments based on Chinese import data.

“Agriculture has fared better relative to manufacturing and energy,” she said. “Agriculture is at 76% of target as of October, manufacturing is at 61% of target and energy is at 48% of target.”

Even though agricultural purchases are below the commitments, Countryman said, “these are still record exports to China and incredibly important to U.S. agriculture.”

The U.S.-Mexico-Canada Agreement is also an important trade agreement for the U.S. agricultural industry.

“It has modest improvements for market access for U.S. dairy and wheat into Canada,” Countryman said. “So, there is a lot of additional room for expansion.”

When the United States withdrew from the Trans-Pacific Partnership, there was a lot of concern about lost market access for U.S. agriculture into Japan, she said.

“The U.S. was able to reach a mini trade agreement with Japan that is largely focused on market access,” she said. “But there are still some market access barriers and room for improvement.”

The United States is not part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership that includes 11 Pacific Rim countries.

“While the U.S. has agreements with many of the countries within the CPTPP, the CPTPP continues to move forward and China is petitioning to join the CPTPP,” Countryman said. “It is really important to keep an eye on what happens with Asian trade given the U.S. is not a member of important agreements covering Asian trade.”

Although tariff barriers between the United States and the European Union are relatively low, Countryman said, there are a lot of additional improvements that can be made for U.S.-EU trade.

“A lot are related to non-tariff measures including tariff rate quotas for example,” Countryman said.

“There are opportunities to harmonize regulations for trade, labor and the environment, but there are tremendous challenges with non-tariff measures that restrict U.S. exports of agriculture to the EU,” she said.

Commodity Supercycle

U.S. farmers are in a new commodity supercycle, according to Dan Basse, president of the AgResource Company, who also spoke during the forum.

“We think the supercycle will last two to three years and energy will be the upside leader,” he said.

The transformation from fossil fuels to green fuels to electrical power is a bumpy road, Basse said.

“The price of crude oil, ethanol and biodiesel will really keep underpinning the agricultural markets and ultimately we believe there’s going to be more farmland needed mainly in Latin America and the Black Sea,” he said.

Demand drivers lift the profitability of U.S. farmers, Basse said, and there are two new ones currently in progress.

“The first one is China importing corn from the world, mainly from the U.S. and Ukraine mainly due to African swine fever,” he said. “They’re banning feeding food waste to the hogs, so the Chinese are importing 40 to 60 million metric tons of feed grains.”

The second demand driver is a renewable diesel product.

“This is a product that goes through a refining process and it can be used in all seasons,” Basse said.

Since the pandemic started there has been a sharp rise in global food prices.

“For many of the impoverished world, this is very problematic,” Basse said.

“American farmers are producing the most abundant supply of food at the cheapest price with U.S. consumers spending 6.7% of their disposable income on food,” he said. “For people in countries that spend from 20% to 70% of their disposable income on food, the rise in food prices is catastrophic and it will cause many political issues.”

Technology for agriculture has kept per capita yields for corn, soybeans, wheat and sorghum increasing almost every year; however, the last four years the yields have stagnated, Basse said.

“In a recent study we found this is due to climate change with more droughts, floods and pattern stagnation,” Basse said.

“If technology is not raising yields at 1.6% that normally occurs because climate change is offsetting some of that, we’re going to need more acres,” he said.

Since 2011, Basse said, farmers have been reducing hay and Conservation Reserve Program acres to increase crop acres.

“(USDA) Secretary (Tom) Vilsack wants to have more land in CRP, so he’s looking at adding somewhere between 3 to 5 million acres,” he said. “They are now bidding $240 to $250 per acre to secure that fragile land into CRP.”

In addition, hay acres are at the lowest level since 1909, Basse said.

“When I combine both of these together, I believe we’re bumping against levels in which we peak farmland in terms of utilization and that has lots of ramifications for U.S. agriculture,” he said.