traders report

Phase One Trade Deal May Benefit Cotton the Most

Dan Cotton, Trade

phase one

By Clint Thompson

Wednesday’s phase one trade agreement signed by the United States and China is a historical moment in the country’s history, according to Stephen Censky, U.S. Department of Agriculture Deputy Secretary.

“It addresses a lot of the trade issues we have had with China about their structural impediments to our exports as well as make some substantial purchase commitments on the part of China to purchase U.S. agricultural commodities; $40 billion to $50 billion of agriculture products over the next two years,” said Censky in an interview with Southeast AgNet.

He added that to put those purchases in perspective, if China reaches the $50 billion mark, it will double what China purchased from the U.S. in 2017.

“We do expect there to be commodity purchases across the gamut. It is going to include our meat products,” Censky said. “It is going to include grains. It is going to include wheat. But it’s also, importantly, going to include fresh fruits and vegetables and nuts. It’s going to have to include that if China is going to reach their commitment of getting up to that $40 to $50 billion.”

But this agreement comes with its share of challenges, according to Adam Rabinowitz, University of Georgia Assistant Professor and Cooperative Extension Economist, specifically with respect to the purchasing amount China has committed to.

“That’s a large number. We’ve only historically seen China in the mid-20s; $24 billion, $26 billion worth of ag products, in terms of purchases in the past. To get back to that pre-trade dispute level is certainly going to be the first challenge and then to potentially get up to $40 billion is certainly something that’s going to take a lot of effort and a lot more purchases than we’ve ever seen before,” Rabinowitz said.

The deal comes amidst a trade war between the two countries that has lasted almost two years. In exchange for China committing to purchasing more American goods, the United States has agreed to cut back on the tariffs it imposes on Chinese imports. For those who are skeptical that China will not follow through on its agreement, Censky issued the following reply: “We have the ability to monitor and if China isn’t living up to its purchasing commitments and some of its structural reform commitments, we have the ability to put tariffs back on Chinese goods as well,” Censky said.

Rabinowitz added that the commodity where farmers will benefit the most from this deal is in cotton. “From the Southeast region, I think cotton (farmers) have the ability to benefit the most just because China has been the No. 1 purchaser of US cotton in the past. They use that for their textile production and a lot of the clothing that comes back to the U.S. That is something that can be of great benefit for our southeastern producers,” Rabinowitz said.