US–China Trade Deal Boosts Optimism for Farmers, Banks, and Markets

Trump suggests farmers ‘immediately buy more land and get bigger tractors’
By Emel Akan
Emel Akan
Emel Akan
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
October 13, 2019 Updated: October 14, 2019

WASHINGTON—President Donald Trump on Oct. 11 praised the new partial agreement with China, saying “there’s never been a deal of this magnitude for the American farmer.”

Following two days of talks between top-level U.S. and Chinese trade officials in Washington last week, Trump announced that the United States reached a partial trade agreement “in principle” with China, on intellectual property, financial services, and agriculture.

Beijing agreed to purchase “up to $40 billion to $50 billion” in agricultural products from the United States.

“That’s the largest order in the history of agriculture, by far, by two and a half times,” Trump said Oct. 11 at his meeting with Chinese Vice Premier Liu He in the Oval Office, after the conclusion of negotiations.

“The farmers are going to have to work a lot of overtime to produce that much,” he said. “So I’d suggest the farmers have to go and immediately buy more land and get bigger tractors.”

As part of the agreement, Washington suspended the tariff increases on Chinese goods scheduled to take effect this week.

“We’ve been through a very tough negotiation. There’s never been a negotiation like this,” Trump said at the meeting.

He called the agreement “a very substantial phase-one deal,” adding that there will be two or three phases in China trade talks. The president also said that progress was made on currency and foreign exchange issues as well as technology transfer discussions.

Since the beginning of the trade conflict in 2018, Trump has repeatedly accused China of targeting U.S. farmers.

China’s retaliatory tariffs since last year have affected a host of farm products, including soybeans, corn, wheat, cotton, rice, and sorghum, as well as livestock products. Soybean farmers have been among those hit hardest, as they accounted for nearly 10 percent of total U.S. exports to China before the trade war.

According to experts, Beijing’s retaliation has been selective and strategic, aiming to hit counties in rural areas in the Midwestern plains and Mountain West states that are Republican strongholds.

Trump said the farmers will now be happy with the phase-one deal.

“It would be a good time to own land in Iowa, Nebraska, and a lot of other great states,” he said.

Beijing no longer believes that it can ride out the trade storm, according to Trump.

“Because if they did, they’d rather deal with a Sleepy Joe Biden, who is failing badly. He’s not going to make it anyway. But whoever does emerge on the other side, they’d probably be better off, maybe, waiting,” Trump said at the meeting.

“But they also know that when I win, the deal gets even tougher,” he said. “And they expect that I’m going to win, otherwise, they wouldn’t sign the deal. It’s very simple.”

Deal is ‘Boon’ to US Banks

U.S. Treasury Secretary Steven Mnuchin said at the meeting that there was “almost a complete agreement” on the issues of currencies and opening of Chinese financial services markets to U.S. firms.

The agreement would include commitments to transparency around foreign exchange practices.

And opening up Chinese markets to U.S. financial institutions would be “a massive boon,” particularly to large banks and credit card companies, Trump said.

U.S. Trade Representative Robert Lighthizer said that Trump hasn’t made a final decision about tariff increases set to take effect in December.

He also said that both sides were very close to finalizing enforcement provisions and “a workable dispute settlement mechanism.”

The phase-one agreement should be completed and signed “over the next four weeks,” Trump said, and the phase-two negotiations would start “almost immediately after” that.

“We’re going to be in Chile in five weeks,” he said, implying that there could be “a formal signing” with Chinese leader Xi Jinping. The leaders will meet at an Asia-Pacific Economic Cooperation summit in mid-November.

During their meeting, Liu handed a letter from Xi to Trump.

“We have made substantial progress in many fields. We are happy about it,” Liu said. “We’ll continue to make efforts.”

When asked whether he brought up the investigation of former Vice President Joe Biden during the negotiations, Trump said, “I have not brought up Joe Biden. China can do whatever they want with respect to the Bidens.”

With respect to blacklisted Chinese telecom firm Huawei, Lighthizer said, “It’s not part of this agreement. That’s a separate process.”

Stocks Rallied

Optimism surged on Oct. 10 after media reports suggested there could be a partial agreement between the United States and China.

The Dow Jones Industrial Average jumped more than 300 points (1.2 percent) and the S&P 500 gained 1.1 percent on Oct. 11.

Chinese stocks also rallied on hopes of progress in the trade talks. Hong Kong’s Hang Seng closed the day 2.3 percent higher and the Shanghai Composite gained 0.9 percent.

Trump voiced optimism in a series of tweets on Oct. 11, before his meeting with the Chinese vice premier.

“Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the Old Days,” Trump wrote.

In another tweet, he said that “one of the great things about the China Deal is the fact that, for various reasons, we do not have to go through the very long and politically complex Congressional Approval Process. When the deal is fully negotiated, I sign it myself on behalf of our Country. Fast and Clean!”

A Comprehensive Deal

Markets welcomed the partial deal, which lays the groundwork for a broader trade pact between the United States and China.

With the Oct. 11 deal, the administration is “trying to essentially continue to portray confidence to the market,” said Robert Spalding, China expert and author of the book, “Stealth War: How China Took Over While America’s Elite Slept.”

“The idea is to make investors more confident so they’re willing to invest,” he said.

However, he doubts that it will lead to a more comprehensive deal in the future, which would require Beijing to deliver broad structural reforms demanded by Washington.

“The Chinese Communist Party is not interested in a comprehensive deal. Period,” he said.

The world’s two biggest economies have for more than a year been embroiled in a tit-for-tat trade war. Trump launched a tariff campaign early last year as part of a strategy to end China’s decades-long unfair trade practices. He repeatedly denounced Beijing for embracing policies including market barriers, state subsidies, currency manipulation, product dumping, forced technology transfers, and the theft of intellectual property and trade secrets.

In September, Trump delayed a tariff increase on $250 billion of Chinese goods to Oct. 15 in a gesture of goodwill, taking into account China’s Oct. 1 holiday. The Chinese regime, in response, exempted U.S. pork and soybeans from additional tariffs, and has recently made big purchases of U.S. soybeans.

Last week, the U.S. Commerce Department blacklisted 28 Chinese entities, including eight technology and surveillance firms, because of their involvement in human rights abuses in China’s northwestern region of Xinjiang. The U.S. State Department also imposed visa restrictions on Chinese officials involved.

Emel Akan
Emel Akan
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.