China to Ask Americans to Remove Tariffs in Lieu of Ag Purchases

Alan Penny

25 October 2019

3 min read

  • China likely to ask for Americans to remove tariffs for agricultural purchases
  • China needs agriculture imported, not giving up much
  • Will have a massive influence on grains

The Chinese are likely to ask for the cancellation of some planned and existing US tariffs on Chinese imports, as the Americans and the Chinese start to talk again on Friday. They are discussing Chinese buying more US farm products, which is a huge part of American exports into the mainland. That being said though, the Chinese don’t produce enough food to feed themselves, so this is still a market that the Chinese need.

A phone call is scheduled for Friday, which puts together Chinese Vice Premier He and Robert Lighthizer, along with Steve Mnuchen. This should be the latest attempt to calm down the trade war that continues to see tariffs that are not only applied already, but implied for the short-term future.

Phase 1

The trade representatives are trying to agree on text for the “phase 1” trade agreement announced on October 11. The rush is on to get the initial part of the trade agreement done so that US President Donald Trump and President Xi Jingping can meet next month at a summit in Chile. So far, there is still quite a bit of work left to do as the two sides are far apart on a wealth of issues.

increased access to Chinese financial services markets, improved protections for intellectual property rights, and a currency pact are all on the table

The Americans have only agreed to cancel an October 15 increase in tariffs on $250 billion in Chinese goods as part of the understandings reached previously on agricultural purchases. Beyond that, increased access to Chinese financial services markets, improved protections for intellectual property rights, and a currency pact are all on the table as well.

Stock markets waiting

The stock markets are a good proxy for the stagnation in the trade talks. At this point, it’s obvious that market participants have no idea what to do next. Every time it seems as if we are one step forward in this process, this is followed by another step backwards.

The next couple of days could see a few headlines coming out, giving us a bit more to work with when it comes to the US-China trade relations. Of course, this could also have an influence on what the Federal Reserve does going forward, as far as interest rates are concerned.

Lack of trust

One of the biggest issues with this scenario is that there is a significant lack of trust. For years China has had forced intellectual property transfers, as well as theft of intellectual property, by their way of doing business. The question now remains as to whether or not anything can be done for the longer term.

It would take a serious cultural and structural change to make the Americans happy. At this point, that doesn’t seem to very likely. Therefore, at best we are looking at a small deal, but that may not be until after the presidential election in 2020.

Written By
Alan Penny

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