China yet to meet Donald Trump’s demand to purchase more farm goods as US-China trade crumbles

Despite the demand by US President Donald Trump that China buy more American agricultural products, new numbers released on Friday show that Beijing is not seeking to address the issue.

Trump took to Twitter on Thursday to say that China had been “letting us down” by not buying US farm goods, which he claimed China’s President Xi Jinping promised to do at their summit meeting at the G20 at the end of June.

Such purchases have become a critical bone of contention in the bilateral trading relationship. A year ago, a large-scale purchase of soybeans, pork or grains seemed to be the easiest “win” for either side in the trade war, since it would help reduce the large US trade deficit with China, while allowing Beijing to divert focus from the structural changes in its economy that Washington was demanding, such as reform of state-owned enterprises.

Now, however, China is believed to be refusing to allow large-scale agricultural purchases until it has clarity on the US Entity List, which left Chinese firms such as Huawei subject to import blacklists, freezing them out of vital US-made technology.

The South China Morning Post reported on Tuesday that Chinese sources said Trump pressed Xi during their summit meeting last month for a promise to buy more US farm products, but China’s president refused to make a firm commitment.

Figures released on Friday by the General Administration of Customs show China is winding down its purchases from the US amid a sharp deterioration in the trade relationship.

Overall, Chinese imports from the US plunged 31.4 per cent in June from a year earlier to just US$9 billion. Meanwhile, China’s exports to the United States fell by 7.8 per cent to US$39 billion.

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The US trade deficit with China expanded from US$26.90 billion in May to US$29.92 billion, an 11 per cent rise that is likely to infuriate Trump, who has repeatedly railed against the bilateral trade imbalance.

China’s customs authority offered no breakdown of imports from the US on a product-by-product basis, but it is clear that there were no purchases of US soybeans in June, nor thus far in July, that would constitute the “tremendous” agricultural trade exports to China Trump claimed in his press conference after the G20 meeting with Xi.

Overall, China’s imports of soybeans fell last month to 6.52 million tonnes, down from 7.36 million tonnes in May and 8.7 million tonnes in June 2018. Of May’s 7.36 million tonnes, which is the latest bilateral monthly data available, China bought just 980,000 tonnes from the US, while purchasing more than 75 per cent of its soybeans from Brazil, largely replacing US stocks.

The African swine fever crisis engulfing China’s pig farms is sure to have played a role in the overall decline as much of China’s soybean import were previously used as livestock feed. The 25 per cent import tariff imposed on US soybeans by the Chinese government as part of the trade war is also a clear deterrent for private buyers.

The US Department of Agriculture (USDA) reported on Thursday that “for 2018/19, sales and shipments of US soybeans to China are drastically low, but they are taking place”. The USDA’s figures show that since the start of the trade war last year, the soybean trade has been severely disrupted.

It also pointed to a 544,000 tonne purchase made in the week before the G20 summit in Osaka, which was the largest weekly sale to China since March.

“The size was not nearly large enough to constitute the sizeable purchases that were alluded to by Trump, but then again, Trump doesn’t appear to hold back on his use of superlatives for effect, and the administration has made mistakes when tweeting or talking of agricultural purchases,” said Rob Hatchett, senior economist at Farm Journal Media in the US, who added that the purchase “was clearly seen as a goodwill gesture ahead of the [Trump-Xi] meeting”.

And according to the USDA, in the week following the Osaka summit, China’s purchases of US soybeans amounted to only 127,800 tonnes, a 79 per cent reduction on the previous week, Bloomberg reported, suggesting the “goodwill” was short-lived.

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The importance of agriculture is unlikely to diminish as the US president focuses on a long re-election campaign, with China trade also set to feature heavily, with Trump needing to tread a fine line between appeasing his electoral base, much of which is drawn from farming communities in the Midwest, and being tough on China.

Beijing is fully aware of this, according to Shi Yinhong, a professor of International Relations at Renmin University in Beijing, who said that on agriculture, “China is seemingly ready to fight a protracted campaign with remarkably less flexibility than it had perhaps naively before late-April,” before trade talks broke down.

“In fact, China seemed to agree to buy American agriculture products conditionally, with the conditions expressed in the typically Chinese ambiguous way.”

The importance of agricultural purchases were reiterated by Trump’s economic adviser Larry Kudlow at a CNBC event on Tuesday, when he said: “President Xi is expected, we hope in return for our accommodations, to move immediately, quickly, while the talks are going on, on the agriculture [purchases] … that’s very, very important.”

But on Friday, Ministry of Commerce spokesman Geng Shuang suggested that China would not be easily swayed on the issue of agriculture, saying: “China and the United States should discuss and resolve the issue of agricultural trade on the basis of equality and mutual respect”.

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Geng again suggested the need for clarity on the ability of US firms to sell equipment and components to Huawei as a precondition for more agriculture purchases.

“The US has used unwarranted charges to suppress Chinese companies, including Huawei, which not only harms the legitimate rights and interests of Chinese companies, but also harms the interests of US companies, seriously disrupting the normal scientific and technological exchanges and trade between the two countries and the world,” he said.

Additional reporting by Zhenhua Lu and Catherine Wong