Commodity traders need to wait longer to see China tariffs gone

Commodity traders relying on Joe Biden to remove tariffs on $370 billion of imports from China will have to wait a little longer.

The President-elect has already said that he won’t immediately drop the duties, and experts now warn he is more likely to focus on domestic issues. He enters office faced with tackling the coronavirus crisis and propping up the economy after millions lost their jobs as the pandemic shut down businesses.

The Trump administration’s two-year trade war with China upended agriculture markets, with soybean exports to the world’s biggest importer almost grinding to a halt at some points. While the phase-one trade deal signed earlier this year brought some stability back to markets with a boom in crop purchases, tariffs remain in place and the U.S.-China relationship remains volatile.

“People ask me, inevitably, some variation of what the broad contours are going to be on the Biden-Harris approach? In the near term I would say Covid, Covid, Covid,” Phil Karsting, who organized the Rural 2020 group to provide input to the Biden campaign on agricultural issues, said at a National Grain and Feed Association event on Thursday. “Biden has made very clear that first we’ve got to do some things to get our economy in order here at home.”

Agriculture and metals traders have been closely watching Biden’s moves to get a feel for the President-elect’s plans, not only regarding China but also steel and aluminum tariffs that have rocked the relationships with other American trade partners including Canada, the European Union and Mexico.

Additional Concessions

Biden will likely seek some sort of additional concessions from China before removing or reducing tariffs, Jeffrey Gerrish, former Deputy U.S. Trade Representative, said at the NGFA’s Country Elevator Conference virtual event this week. Those could include cyber intrusions, state-owned enterprise disciplines and subsidies, said Gerrish, who helped negotiate the phase-one trade deal before leaving the USTR earlier this year.

“The paradigm has shifted in the relationship with China over the last few years, and there’s really no going back at this point,” he said. “We are unquestionably a severely divided country, but the only thing everyone seems to agree on, Republicans and Democrats alike, is the need to be tough on China.”

The coronavirus crisis has put a spotlight on key rural issues including the strained health system and lack of broadband access, which isn’t just important for distance learning and telehealth, but also for the implementation of precision agriculture tools, Karsting said. The pandemic also shed a light on the fragilities of the food system, with consumers facing empty shelves at supermarkets and millions going hungry.

“Americans saw producers doing things that are very, very painful in the early days of this pandemic: dumping milk, depopulating herds,” he said. “At the same time, they saw Americans lining up in record numbers at food banks, and that confluence of things is going to prompt a lot of soul searching.”

Unlike Trump, Biden will likely try to tackle China and overall trade relationships multilaterally. That will take time and require the U.S. to repair its relationship with many of its allies, Karsting said.

But Gerrish warns that bringing allies together is easier said than done. Many Asian nations rely on trade with China and may not want to “rock the boat,” while the EU has 27 countries with varying interests, he said. Italy, for example, has signed up for the Belt-and-Road initiative, which has helped China diversify away from its dependency on the U.S.

“The problem is that many of our allies have different interests from us when it comes to China,” he said. “We should not expect anything early on in a Biden administration.”