Soybeans Lead Gains in Agriculture on U.S.-China Trade Truce

Gladys Abbott
December 5, 2018

Trump tweeted on Monday that his meeting with President Xi was "extraordinary", and that "very good things" will happen in terms of the United States' relationship with China.

The United States said Monday it will need to see "something concrete" from China in the next 90 days to build a real agreement on trade, two days after Donald Trump and Xi Jinping called a truce in the escalating confrontation between the two powerhouses.

"China is supposed to start buying Agricultural product and more immediately", Trump wrote.

China's reticence contrasted with the parade of US officials talking about the deal on Monday, including Treasury Secretary Steven Mnuchin and White House Economic Adviser Larry Kudlow.

There are several significant take-aways from this development, including the argument that Trump's hard line, even at times belligerent stance with Beijing, has caused them to blink first, particularly since economic growth in China has already started to feel the brunt of USA tariffs, while US economic growth, though not as robust as a few months ago, is still strong.

The Dow Jones Industrial Average plunged on Tuesday amid fears of an economic downturn, led by disappointing bank earnings and unresolved trade issues between the USA and China. China raised its tariff on auto imports from the US from 15 percent to 40 percent in retaliation for Trump administration tariffs on imports from China.

Trump's economic team has spun his knee-jerk protectionism as a tactic created to negotiate "better" trade deals - but so far, those better trade deals don't seem to be stronger than the status quo ante.

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Trump declared himself Tuesday "a Tariff Man" who wants "people or countries" with intentions to "raid the great wealth" of the U.S. Many Democrats and Republicans, as well as global leaders, have agreed with Trump's assessment, and he has taken an adversarial approach with Beijing, saying he believes this is the only way to force changes.

Behind Beijing's apparent caution may also be a whiff of fear that the truce might not last, said Andrew Gilholm, of the consultancy Control Risks.

The currency of the second biggest economy is believed to be gaining strength, taking into account two factors, one of which is the productive Trump- Xi meeting on the side-lines of the Buenos Aires-hosted G20.

"There was a significant commitment from both leaders on what needs to be done over the 90 days and instructions to both teams to negotiate and turn this into a real agreement with specific action items, deliverables and time frames", Mnuchin said.

As such, Trump was keen to reassure USA farmers that the negotiations with China would benefit them.

The president also explained his philosophy of why he supported tariffs with foreign countries. The Trump administration has thus far applied tariffs to $253 billion worth of Chinese goods, and has threatened to apply 25 percent tariffs to another $267 billion worth of Chinese merchandise if this round of talks are unsuccessful.

China's foreign ministry, the only government department that holds a daily briefing that foreign media can attend, has repeatedly referred questions on details to the commerce ministry, which has yet to say anything.

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