U.S.-China Phase 1 Trade Deal: A Win for U.S. Farmers?

After a year of negotiation, the U.S. and China finally reached a phase 1 trade deal that is scheduled to be signed on January 15, 2020. As part of the trade deal, China has promised to purchase a significant amount of agricultural products from the U.S. According to U.S. Trade Representative Robert Lighthizer, China would purchase 40 billion to 50 billion dollars of agricultural products annually over the next two years under the deal.

There has been scepticism over whether China will be able to import such a large amount of U.S. farm products. On January 2, a China's buy list (expected) is released online. Here, I compare the amounts in the list with historical trade data to get a sense how "big" the Chinese purchase is. Since the trade deal has not been signed yet, it is unsure that if the list would be the final one to be used.

1. The (expected) China's buy list   
According to the list, China is expected to buy: Soybeans (34.0 million ton), Sorghum (5.0 million tons), DDGs (5 million tons), Corn (5.5 million tons), Wheat (4.5 million ton),  Ethanol (2.0 million tons), Cotton (2.5 million ton), Dairy products (2 million tons), Broilers (1.6 million tons), Beef ( $1.0 billion worth), Rice ($600 million worth).

2. Historical Trade Data   
Figure 1 shows annual U.S. exports (in quantities) of several agricultural products to China from 2010 to 2018. The horizontal dashed lines represent the amounts of agricultural products that China is expected to buy. The data show that the expected purchases for corn, cotton, dairy products, and wheat are higher than the observed exports to China in any year during 2010-2018. Notably, for corn, cotton, dairy products, and wheat, the expected purchases are almost four times as high as the historical exports. For DDGs, sorghum, and soybeans, the expected purchases are not much higher than the historical exports.

Though not shown in figure 1, the expected purchases for beef products and rice are also much higher than the historical exports. The U.S. exported 60 million dollars of beef to China in 2018, the highest level in the recent history. The U.S. rice exports to China has always been lower than 5 million dollars since 2010. If China purchases 600 million worth of rice, the rice farmers could really benefit. In fact, China has been a large rice importer. In 2018 alone, China imported 3 million tonnes of rice that worth 1.6 billion dollars, mainly from Thailand, Vietnam, and Pakistan.

3. Discussions
Historically, China has been stick to the self-sufficiency policy, under which agricultural imports (especially for staple foods including rice, wheat and maize) are minimized (Chen et al, 2019). However, China's policy makers have been more positive about importing since 2010s. Given the sheer size of Chinese population, China has the potential to be a larger buyer of agricultural products. For U.S. farmers, market access to China is very valuable.

The expected purchases from China of agricultural products might be surprisingly good, since they look much higher than the historical U.S. exports to China. Yet, the promises (if the list is truly used) made by China are not beyond the realm of possibility. Besides, increasing agricultural imports are in alignment with the China's agricultural policy of increasing agricultural imports to certain degree.

Expanding agricultural imports from the U.S. is at odds with China's intention to diversify the sources of agricultural imports. (Import diversification has been emphasized in China's government reports.) Yet, this is only a problem for corn. We can see from figure 1 corn exports to China dramatically declined in 2014. This is a year that China starts to import corn from Ukraine, which is part of the strategy of import diversification (Gale et al., 2015). Nevertheless, the bilateral U.S.-China trade deal as a policy shock will likely affect the global agricultural markets. More analyses are needed to understand the possible global impacts of the trade deal.