The Phase One Trade Deal: Projections and Implications

By Chad Hart and Lee L. Schulz


There have been a number of agricultural market movers (issues that change the direction and intensity of price moves) over the past year; however, most of these movers cancel each other out. Weather problems limited supplies and pushed prices higher, but the trade disputes and tariffs limited usage and offset the price impacts. With the passage of the USMCA and the signing of trade deals with China and Japan over the past few months, there is some positive news on the trade front. However, as the market reaction to the US-China trade deal signing indicates, agricultural markets are not interested in the political deals, but in actually seeing trade flows change due to these deals.


Figure 1. US agricultural trade flows, 1970–present.
Source: USDA-FAS


International trade has grown into a lucrative component for US agriculture. As figure 1 shows, the values of agricultural product exports and imports have more than doubled since 2000. While crop prices have dropped dramatically since 2012 and livestock prices have retreated from 2014, US agricultural export values have remained fairly firm, holding at $130–$140 billion over the past five years. While imports have also risen significantly over the past couple of decades, agriculture remains one of the few sectors in our economy where the United States holds a trade surplus. The recent trade disagreements have diminished that surplus, but overall trade values remain robust.

The progress on multiple trade deals signals the potential for significant shifts in agricultural trade. The USMCA and Japan agreements concentrate on solidifying existing trade flows, rather than significantly expanding trade opportunities. Canada, Mexico, and Japan have been major agricultural markets for the United States for quite some time. These new deals maintain and protect those relationships, with the prospects for continued, but limited, growth. The China deal, on the other hand, has the potential to radically change global trade flows. To see why, it is important to understand the current agricultural export picture.


Figure 2. Export market segments.
Source: USDA-FAS


Figure 2 breaks down US agricultural export values by market destination. The blue line is the value of agricultural exports to countries where the United States has a free trade agreement. Canada and Mexico represent roughly two-thirds of that volume. The red line is the value of agricultural exports to China. Prior to 2000, China was a very small market for US agriculture; however, trade between the United States and China grew significantly and quickly after, peaking at roughly $25 billion in 2012. Between 2012 and 2017, US agricultural export values to China slowly declined, mainly due to the general reduction in agricultural prices. Trade disagreements between the United States and China and the imposition of tariffs led to the steep drop in export values in 2018. We did see, however, some recovery in agricultural trade flows to China even before the signing of the China trade deal. The green line is the value of agricultural exports to the rest of the world, and shows that we rely on significant trade flows outside of China and free trade partners. To put it another way, agricultural trade is more complicated than the “Big 3” markets of China, Canada, and Mexico.


Figure 3. Projected export flows under the “Phase One” deal.


The Phase One deal alters the agricultural trade landscape—China has agreed to specific targets for agricultural purchases for this year and next year. The deal uses 2017 as the base year for trade, and, as figures 2 and 3 show, Chinese agricultural purchases totaled roughly $19.5 billion that year. For 2020, China agreed to purchase $12.5 billion more in agricultural products than it did in the base year, which puts 2020 US agricultural exports to China at $32 billion (other publications report higher amounts, but they are including forestry and ag-related products, such as infant formula and pet food). For 2021, the agreement is $19.5 billion more than the base year—$39 billion in agricultural sales to China. These two targets alone guarantee a significant surge in sales to China, far eclipsing the record sales from 2012. The text of the deal also includes a statement indicating that the growth in US agricultural exports to China set in these two years is projected to continue through 2025. Figure 3 outlines those projections. If projections from the deal are accurate, agricultural trade with China will grow to exceed what the United States currently ships to its free trade partners or to the rest of the world.

Traders are sorting through three big questions right now. One, will China follow through on these commitments over the next two years and what mix of products will they choose? Two, how secure are those projections for continued agricultural trade growth beyond 2021? Three, what happens to our other markets as this agreement is fulfilled? We feel that it is likely that China will meet the value targets for the next two years as the African Swine Fever outbreak there has created a significant protein gap for China. The deal contains language easing trade rules for meats between the two countries, so it makes sense that China would expand meat purchases from the United States, fulfilling two objectives at once—filling in the protein gap and meeting trade targets. While soybeans were the largest portion of previous agricultural sales to China, we expect meat, especially pork, to take the leading spots in our future sales to China. Thus, the product mix will shift, moving to more value-added products, which helps China hit the dollar value targets.

Sales beyond 2021 are not locked in place. The agreement only states that both countries currently think the trade flows would continue to develop at the same pace as the first two years, implying gains of $7 billion per year. If the projections hold, they imply significant shifts in global trade flows—US agriculture will become even more reliant on Chinese demand. A large concern is what will happen to our other markets—this deal will likely crowd some of them out. China has agreed to buy more agricultural products, but that does not mean we can add that value to total exports. In fact, we are currently already seeing the potential for crowding out. Over the past few months China has re-established itself as the top market for US soybeans. As China has moved back in, however, numerous other markets have reduced US soybean imports. Sales to the European Union, Mexico, Japan, Indonesia, South Korea, and Canada have fallen. With trade, there can be significant slippage—gains in one area are often offset by losses elsewhere. In this case, forcing sales to China will likely cost us open sales to the rest of the world.

Suggested citation:

Hart, C. and L. Schulz. 2020. "The Phase One Trade Deal: Projections and Implications." Agricultural Policy Review, Winter 2020. Center for Agricultural and Rural Development, Iowa State University. Available at