Thunderbird’s Allen Morrison offers expert analysis of China trade deal phase 1 agreement, says US agricultural trade with China may never return to its previous levels.

Thunderbird’s renowned expert on Chinese business, Allen Morrison, offers analysis of phase 1 trade agreement, says US agricultural trade with China may never return to its previous levels. 

Quote attribution:

Allen Morrison, PhD

Professor of Global Management

Thunderbird School of Global Management

Agricultural products are a common target in trade wars. They are uncomplicated and often strike at a nation’s heartland. While the US has added tariffs on steel, aluminum, and tech goods, China (as well as Canada, Mexico, and the EU) has levied tariffs on a range of US agricultural products. Products affected include nuts, soybeans, vegetables, pork, Maine lobsters, and cheese. China accounts for about 80% of the impacted trade in agricultural products.

Farmers and food producers outside the US have been quick to take advantage of the mounting tariff differences. By way of comparison, Chinese tariffs on yellow soybeans imported from the US rose to 33%; in comparison, they were just 3% for imports from Argentina and Brazil. Not surprisingly, Brazil’s share of Chinese imports of soybeans has risen to nearly 80% while US exports have withered to just 10%. Likewise, Canada’s market share of Chinese wheat imports has nearly doubled over the past 18 months, almost entirely on the backs of US farmers. Likewise, Germany, Poland, and Spain have seen significant increases in pork exports to China while US exports have fallen off a cliff. 

Now, with the easing of tariffs, some expect that Chinese imports of US agricultural products will return to their glory days. This may be wishful thinking. In some cases, new suppliers have established strong relationships with Chinese buyers that they will be reluctant to unwind. In other cases, Chinese importers have developed a new-found appreciation for supplier diversity. After all, the Chinese government is keenly interested in increasing its food security. Also, a strong US dollar plays into the hands of many international suppliers. So too does the increasing sophistication of international suppliers in terms of the application of fertilizers, and deployment of new seeds, irrigation technology, and equipment. Countries like Russia, Brazil, and Argentina are quickly catching up to the US in terms of their overall costs and quality.

In favor of the US, China continues to represent an insatiable market for agricultural products. Over the past year, Chinese food prices have increased by over 9%, in part because of the tariffs but also because other countries are generally less efficient producers. And so there is pressure on the Chinese leadership to find solutions. Basic agricultural products are fungible, meaning that as tariffs come down not only in China but between the US and Canada, Mexico, and the EU. US agricultural products will find ready markets that favor the lowest-cost producers.  

Just as China has been forced to diversify its suppliers, US farmers have shown a new-found interest in diversifying export markets. Many are ramping up efforts to expand sales to countries like Taiwan, Germany, Vietnam, Mexico, and Sri Lanka. It is unlikely that we will ever fully return to the trade patterns we enjoyed just five years ago.

Professor Morrison’s full expert profile: https://newsroom.asu.edu/expert/allen-morrison

Broadcast studio interviews available on request. Please contact Thunderbird’s Director of Media Relations, Jonathan Ward to coordinate on-camera interviews.

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keywords: US-China trade deal phase I agreement

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