Coronavirus pandemic makes China trade deal uncertain

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AMES, Iowa — With planting season just weeks away, the novel coronavirus pandemic has Iowa farmers wondering what to expect in the marketplace and how it might impact the recently announced phase-one trade deal with China.

According to the deal, China has agreed to buy $12.5 billion in U.S. agricultural products in 2020 and $19.5 billion more in 2021. Recent world events have caused uncertainty as to when those shipments will begin, and whether the targets will be met.

“The farmers are hopeful,” said Wendong Zhang, an assistant professor and extension economist with Iowa State University Extension and Outreach, “but they want to understand how the phase-one deal will impact their income and export potential, and the coronavirus adds significant uncertainty.”

In an article he co-authored for “The Conversation” with Tao Xiong, professor of agricultural economics at Huazhong Agricultural University in China and a visiting scholar at the Iowa State Center for Agricultural and Rural Development, Zhang says China can still make the planned purchases, at least for the year 2020, but current events will make doing so more challenging.

“A resilient and recovering Chinese economy means the country can comply with the trade deal and potentially minimize damage to the U.S. economy from an ongoing trade war,” Zhang and Xiong’s article claims. “Make no mistake. These disruptions have been profound.”

New restrictions in China and the U.S. have led to significant reductions in Chinese imports, according to Zhang, with the possibility that the start date for the phase one deal could be pushed back from February to late April or May. The rapid spread of coronavirus in Europe and the U.S. makes Chinese buyers even more cautious regarding overseas personnel and cargo flows.

Zhang and Xiong said another factor affecting trade is market prices. The phase-one deal allows Chinese agricultural purchases to be based on market prices and commercial considerations rather than quarterly purchase targets or commodity-specific purchase contracts.

This provision gives China more flexibility with what it purchases, according to the article. For example, China recently bid on U.S. sorghum.

Zhang said there is reason for U.S. producers to be optimistic, including China’s own post-coronavirus recovery and increased demand for pork and other proteins, due mostly to the devastating effects of African swine fever.

“Once life returns to normal,” Zhang said, “as the coronavirus outbreak slows globally, I think the orders and shipments will slowly ramp up. But the coronavirus will definitely be a hard hit.”

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