By RACHEL LANE
WASHINGTON, D.C. — China may be putting a halt on agricultural purchases from the United States – conflicting reports Monday indicated that nation has encouraged government-owned entities to stop purchasing ag products here, following President Donald Trump’s latest round of tariffs announced last week.
Bloomberg News reported the news late Sunday. Sources in China have said the five state-owned companies have held off purchasing, as has the Communist Party of China, confirmed Dan Ujczo, a lawyer with Dickinson Wright specializing in international trade.
The American Farm Bureau Federation had not heard the news and offered no comment Monday. Ujczo said he thinks the U.S. will be in a trade dispute with China for the foreseeable future. He does not think there is a solution where the U.S. returns to having no tariffs.
“Anyone who thinks we’re going back to pre-2017 is living in a fantasy,” he added.
The announcement came days after Trump tweeted his decision to add a 10 percent tariff on $300 billion of imports from China beginning Sept. 1. The tariffs would cover everything from smart phones to clothing. He said the decision is the result of China not following through with a promise three months ago to buy large amounts of ag products.
The details of that promise were not released to the public. Additional trade talks are scheduled to take place in September.
The Chinese government takes an annual two-week retreat every August. If Trump does not back off the threatened tariffs before the retreat begins, reports say the decision to make no purchases of U.S. ag products will stay in effect until September, after the retreat ends.
In addition to announcing that state-owned companies would suspend purchases, Bloomberg also reported that uncertainty in trade relations has caused privately-run Chinese crushers to stop buying soybeans from the U.S.
Retaliation was expected when Trump made his announcement. Amanda Countryman, associate professor of agricultural and resource economics at Colorado State University College of Agricultural Sciences, said the Chinese have focused their retaliatory tariffs on items that would hurt the U.S. the most. Ag products were among the first targeted.
“At the end of the day, (the new tariffs announced) are not good news for U.S. agriculture,” she said. “If the U.S. is upping the ante for everything, I wouldn’t be surprised if China responds in kind.”
China buying less from the U.S. means there are more American products on the world market, deflating costs for commodities across the globe. The U.S. can find other markets – and did last year – but China is one of the largest buyers in the world. Purchases from other countries would be unlikely to make the difference for U.S. farmers, Countryman said.
“Over a year ago, there was talk of this being short-term pain and we would have an agreement with China,” she noted. “Farmers in the U.S. are concerned, and rightfully so.”
She explained even when the trade conflict is resolved, there will be lasting impact – supply chains into China have changed and it has been importing more ag products from other sources. She doesn’t know if it will be possible to get the full market share back.
“I think it’s very important to reach an agreement with China. It’s incredibly important for U.S. agriculture … We need China and China also needs the United States.”
Japan and USMCA
An agreement with Japan might be reached soon. Ujczo said the agreement would focus on allowing U.S. ag products into that country, and increasing Japanese automobile access to the U.S.
Japan is one of the few countries in the Trans-Pacific Partnership (CPTPP) with which the U.S. did not already have a trade deal. It is one of the largest importers of U.S. ag products, specifically beef.
When the CPTPP went into effect, the U.S. became less competitive than other countries that faced lower tariffs, Countryman said. American beef is more expensive than Australian beef, she said, but the U.S. beef industry has maintained exports to Japan because its consumers prefer this product – there is a taste and texture difference in U.S. beef.
While the U.S. has kept Japan as an export destination, there has not been an increase in market share, she noted. If the prices of the products were the same, the U.S. would be gaining in the market.
And, the U.S.-Mexico-Canada Agreement (USMCA) is still under review. Mexico has signed off on the agreement, but Canada is waiting for the U.S. Congress has set up working groups to investigate some issues in the agreement regarding Mexico, Ujczo said.
“Everyone’s saying it’s going well, which means we’re not close because there’s no crying or complaining,” he said.
He added it may be brought before Congress for a vote in October, but concerns remain regarding labor, enforcement, environment, and pharmaceuticals. Passing it without resolving these four issues will be difficult.
Mexico has agreed to increase the payment to workers for a certain percentage of auto work – the purpose of this is to increase the cost of labor in Mexico, making it more even with labor costs in Canada and Mexico, Ujczo said.
Current labor costs in Mexico are significantly lower, and there is debate if it will be able to get companies to increase their labor costs. Whether Mexico is moving toward increased pay for labor is one issue being investigated.
Mexico has provided a timeline for the changes, but it will take years to resolve. All the collective bargaining agreements in the country and about 1 billion lawsuits need to be resolved, he said.
Mexico is expected to release a national budget in the next month. Ujczo thinks Congress is waiting to approve the USMCA agreement until after the budget can be reviewed and U.S. labor groups can let legislators know if it goes far enough.
Enforcement is another issue, Ujczo said. The North American Free Trade Agreement had a panel system set up for disagreements, but any country could refuse to appoint a panel member and the issue would stall indefinitely. It has been proposed that enforcement could happen at the plant level.
For example, if there is concern that a Mexican factory is not complying, the U.S. could send representatives there to review the process. Mexico has tentatively agreed to the plan, but stipulated that the reverse must also be true – if they hear farm workers are not being treated fairly, they could go to the farm and review the practices.
A third issue involves environmental impacts from Mexico that impact the U.S., like wastewater contaminating water near San Diego. Ujczo thinks this issue will be easy to resolve.
He believes the most difficult issue to resolve will be about prescription drugs. Creating new drugs is expensive and takes years. In the U.S., pharmaceutical companies have 12 years of protection on their intellectual property, meaning no generic forms of a drug can be developed before that time is up.
In Canada, that time is eight years; in Mexico, it is five, Ujczo said. Getting all three countries to agree to a length of time will be difficult. Getting Big Pharma to agree will be even more difficult.