Getting other nations to promise to buy U.S. goods has become a hallmark of President Donald Trump’s trade agreements. But, it is not always clear whether those promises will be kept and what benefits they bring to U.S. companies or consumers.
Last week, Trump announced a deal in which he said China agreed to purchase between $40 and $50 billion worth of U.S. agricultural products in exchange for the U.S. suspending a tariff hike on $250 billion worth of Chinese goods.
Earlier this month, Trump and Japanese Prime Minister Shinzo Abe signed a deal that opened up $7 billion worth of Japanese markets to U.S. agricultural products such as pork, wheat and wine. And last year, European Commission President Jean-Claude Juncker and Trump made a deal for the European Union to buy more soybeans and liquified natural gas in exchange for a halt to any new tariffs on automobiles.
Trump has long decried U.S. trade deficits with other countries and sees commitments to buy more U.S. products as a key step toward bringing jobs back from overseas, despite most economists’ view that the trade deficit is not a good indicator of a nation’s economic health.
Increased exports can benefit the individuals who make those goods–farmers in the case of this month’s deal with China–because it increases demand for their products and can boost prices. But the details of such agreements are key to whether they actually benefit U.S. producers and whether they come to fruition at all.
Last week, days after Trump announced the China deal he tweeted, “CHINA HAS ALREADY BEGUN AGRICULTURAL PURCHASES FROM OUR GREAT PATRIOT FARMERS & RANCHERS!”
CHINA HAS ALREADY BEGUN AGRICULTURAL PURCHASES FROM OUR GREAT PATRIOT FARMERS & RANCHERS!
— Donald J. Trump (@realDonaldTrump) October 13, 2019
China has not confirmed any additional purchases from the U.S. and said Thursday that negotiators are still finalizing the details of the agreement.
Trade and international policy experts say if the deal is finalized, a spike in exports would be good for U.S. farmers. But, they warn that it wouldn’t make up for the losses incurred by Trump’s trade wars. Also, in the case of China, more exports would be a poor substitute for more meaningful concessions, such as ending unfair trade practices.
How countries could fulfill their promises to buy U.S. goods
There are a variety of ways countries can fulfill their promises to buy more U.S. goods.
Japan agreed to remove some of the red tape that prevents U.S. farmers from sending exports there . The EU has been attempting to keep its end of the bargain made with Trump by approving U.S. soybeans for use in biofuel. It also helped facilitate deals between the U.S. and private companies to send more natural gas to Europe.
Working through private companies can make import quotas hard to implement. In the EU, companies are not building liquified natural gas facilities fast enough to accept U.S. exports.
“In the case of China, it’s different,” said Joseph Glauber, a senior research fellow at the International Food Policy Research Institute because China has state-owned companies that could directly purchase the $50 billion worth of U.S. goods.
It could also suspend its current tariffs on U.S. soybeans altogether to boost imports or give out a set number of waivers, so private businesses can import U.S. goods tariff-free–as it did earlier this year.
What more exports means for the U.S.
Treasury Secretary Steve Mnuchin said last week that China would scale up its purchases over the next two years to buy $50 billion worth of American agricultural goods each year. China has not confirmed any pledge to buy the goods, and trade watchers are skeptical China will reach $50 billion per year. The largest value of agricultural goods China purchased from the U.S. in a single year was $29.4 billion in 2013.
Last year, U.S. agricultural exports to China plummeted to just $9 billion because of tariffs the U.S. and Chinese governments put on each others’ goods, cutting into American farmers’ profits. Trump has tried to offset those losses with billions of dollars in federal payouts to farmers, who were hurt by the tariffs.
If China does buy more U.S. goods as part of the agreement with Trump, it will mark t another government intervention in the agricultural industries.
“Ideally from the U.S. farmers’ standpoint, you want to see the government out of it all together,” Glauber said. “Let the market take care of it.”
Government involvement creates unnecessary costs such as the time and money it takes to process tariff waivers. It also creates uncertainty. At any point, China could decide not to buy as many U.S. products, or Trump could change his mind, and decide to hike tariffs anyway.
Plus, buying more U.S. goods does not get to the “core of U.S. complaints” about China, said Timothy Heath, a senior international defense researcher at the RAND Corporation, a Washington, D.C. think tank.
The U.S. wants China to stop forcing U.S. companies operating in China to hand over intellectual property. The Trump administration also wants China to end subsidies that make it hard for U.S. corporations to compete with Chinese businesses.
“Putting an end to all of these unfair practices, that’s the kind of deal that the U.S. government would really like to see,” Heath said.
U.S. Treasury Secretary Steen Mnuchin told CNBC on Sunday that the U.S. and China have a “fundamental agreement” that includes intellectual property rights, financial services and currency issues, although no details of these agreements have been released.