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Musing on Economics
 
The Mystical Trade Deal
December 15, 2019

This “phase one” U.S./China deal has been 17 months in the making, and the 25% tariff on $250b of Chinese imports will stay put. The 15% tariff placed on $120b of Chinese products in September will get cut in half to 7.5%. Tariffs scheduled for Oct.14th were cancelled. It is unknow how much China plans on trimming its own tariffs and what kind of protections it’ll put on American intellectual property, but
China committed to buying $32b of additional American agricultural goods over the next two years, helping out a group that’s been gut-punched by the trade war.

• The new ag spending will boost China’s total U.S. farm-product purchases to $40 billion/year.
• Throughout the dispute, President Trump had promised $50 billion/year in Chinese agricultural purchases. 
• American farmers will have to claw back market share from Brazil, which has stepped in as China’s premier soybean supplier. Brazil exported over 5 million tons of soybeans last month, 94% of which were headed for China. And for the first time ever, Brazil’s about to lap the U.S. in soybean yield.

Goldman Sachs summarized the deal, “There is still some uncertainty regarding the status of this agreement, as it appears once again that some technical and legal details are still in flux.” If needed, we're ready for 17 more months of trade headlines.