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Trying To Make Sense Of Whether China Will Complete Its “Phase 1” Ag Purchases
SARA WYANT
WASHINGTON, D.C.
America's top diplomat in China says he's optimistic U.S. ag exports will soon find favorable trade conditions in China, but there are a number of factors that play into that decision both here, there, and in between.
Several factors could influence the outcome, including the Chinese government’s recent actions to suppress public protest and dissent in Hong Kong, undercutting the region’s autonomy. The former British colony became a special administrative region of China in 1997 and Hong Kong has been governed under the principle of "one country, two systems" since that time.
In response to China’s decision, President Donald Trump called for an end to preferential trade treatment for Hong Kong. But Trump’s decision prompted more uncertainty about how the Chinese might perceive the decision. As our team reported, the Chinese started buying more expensive Brazilian soybeans and shunning U.S. pork just a few days later. But then, the Chinese once again purchased U.S. soybeans.
Clearly, the messages sent by these decisions appear to be mixed.
I recently interviewed Terry Branstad, U.S. Ambassador to China about the relationship between the U.S. and China. Some comments have been edited for brevity.
1. President Donald Trump initially praised Chinese President Xi Jinping for his response to the COVID-19 outbreak. But lately, there's been a lot of blaming and concern expressed about how the Chinese have handled the situation. Do you think that the Chinese-U.S. relationship is at risk of breaking?
I think the President, like the rest of the world, believed what the Chinese were saying early on, and it turned out that they weren't open, honest and transparent. They stifled the doctor that originally discovered the virus and actually penalized him. And so, there were a lot of problems initially. And as a result of that, and the WHO (World Health Organization) not communicating that the virus could be transferred from one person to another, caused this to become a worldwide pandemic. They didn't do enough to warn the rest of the world.
This is a big and complex relationship. And we worked very hard to get the "phase one" trade agreement. And I know there was just recently a conversation between Ambassador (Robert) Lighthizer and (Treasury) Secretary (Steven) Mnuchin and (China’s top trade negotiator) Liu He, and they all are indicating willingness and an interest in going forward with the implementation of the trade agreement.
2. Do you expect China to consider retaliation for some of the U.S. comments like they have against Australia?
Well, the Chinese tend to retaliate. And we saw that when we were dealing with the tariffs initially, and we've had that in the area of taking action against the journalists and things like that. So that's always a possibility. But I think both sides worked very hard to get the “phase one” of the trade agreement. And there seems to be interest among the parties that were involved in negotiations in seeing that it's implemented. We’re concerned that there's more that needs to be done in agriculture purchases. They have purchased a significant amount of pork and beef and chicken, but soybeans – part of it has got to do with price, and part of it's got to do with the harvest that’s going on in Brazil. But they've purchased more from Brazil than they have from us so far this year. We're hoping in the latter part of the year and we get into the harvest season, we'll see much more purchases from China.
3. So in general, are you fairly confident China will be able to make the purchase goals under “phase one,” perhaps later in the year?
It’s going to be difficult, but I'm hopeful that we're going to see that. Obviously, that's very important. We've got some areas like ethanol, where they have not reduced the tariffs as they promised and we're going to continue to press to see that happens because ethanol and DDGs are one area where I think there's a real need for that. As you know, we have a lot of ethanol plants in Iowa, and China really needs to address the issues of pollution here.
4. So we have seen China offer exemptions to tariffs that were placed in retaliation for the Section 301 tariffs. Do you anticipate that China is going to start doing more of those exemptions to make it easier to have U.S. commodities flow into China?
Yes, we're very hopeful about that. And I've been communicating with the various agriculture commodity groups to encourage them to push for that. A lot of our American producers don't understand the Chinese system and so we're trying to do what we can to educate them about what the needs are to get these exemptions.
5. What else can U.S. producer groups be doing?
Well, I think they need to do everything they can to stay in touch with their customers here in China and assure them that we can provide safe, quality food products. That's something that Chinese consumers are very interested in. They've been burned sometimes by their own local producers with not providing a quality or safe product. American products have a great reputation as being safe and quality. We just need to assure them that we're there and we want to continue to do business with them. And we're interested in seeing the opportunity for more exports here in the future.
6. U.S. beef producers have a lot of expectations of selling much more product to China. How big do you think the potential is for that market?
It’s a big country, with 1.4 billion people. Pork is preferred in terms of a source of protein, but I think there's a lot opportunity. One of the challenges right now for beef is that hotels and restaurants have been their customers. And they've been curtailed somewhat. As they come back online, I think we'll see interest in purchasing more beef go up. But right now, a lot of the hotels are basically empty, and some of the major restaurants that have served the tourists are if not closed, have a very low volume of business. As international travel picks up, and as the demand comes on these sources, I think we'll see the interest in purchasing more American beef go up. And actually, with the issues they have with Australia right now, there might be a real opportunity for us there. As you know, we have corn-fed beef, which is better quality than the grass-fed beef they get from Australia.
7. We've all watched African swine fever drastically reduce China's hog herd. The government is putting in place a lot of incentives to help that industry recover. How quickly will the Chinese be able to get back to full capacity with their own pork production?
Estimates I saw early on indicated that could take three years. And we're about a year into it already. They haven't totally solved the problem with African swine fever. They've had some additional outbreaks here recently. So, they still have a ways to go on that and it’s probably going to take a couple years for them to get back. Of course, they have the biggest hog herd in the world by far. I think it's a market opportunity, certainly for the next couple of years, if not beyond. ∆
SARA WYANT: Editor of Agri-Pulse, a weekly e-newsletter covering farm and rural policy. To contact her, go to: http://www.agri-pulse.com/
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