President Donald Trump has asked China to “immediately remove all tariffs” on US agricultural products in return for his decision to postpone a March 1 deadline to raise US tariffs on Chinese imports to the United States. The additional tariffs that were scheduled to go into effect at the beginning of March are now all set aside for what Trump proclaims is the coming of a great trade deal with China.
Trump`s economic advisor, Larry Kudlow, painted a rosy picture of the current talks that seem to be showing progress but to the public, negotiations are still well behind a curtain of secrecy. However, a day before the Kudlow interview, US Trade Representative Robert Lightlizer gave a more cautious outlook in his testimony before Congress.
Here at Classiarius, we stand by the view that talks will be over publicized and will, in the end, disappoint. Equity markets will suffer as a result.
The announcement of delaying additional tariffs that were scheduled to go into effect in March would increase levies from 10 to 25 percent on a total amount of $200 billion in Chinese goods. Trump has continued to state that progress has been made toward a solution with China and that he would invite Chinese President Xi Jinping to Mar-a-Lago to conclude and agreement and conduct a signing ceremony.
The trade talks have given a boost to countries like Brazil as its trade in agriculture goods have increased as the farmers in the US mid-west have seen a decrease in exports. China has already placed tariffs on US beef. As a support measure, Trump is spending $12 billion to support farm industries that suffer trade-related losses. Prices of US soybeans are lower, sinking to decade lows and actually below cost of production.
The US agricultural farmers are overwhelmingly conservative voters who helped put Donald Trump in office, so they clearly are committed to supporting Mr Trump. Many are counting on the President negotiating a better trade deal with China. Some experts now feel that President Trump has given up too much market share to Brazil and that US farmers will have a tough time reclaiming this share back when a new trade deal is in place.
More on the trade talks in the coming week