Is the Tariff Trade War Heading For A Cease-Fire?

By Howard Halderman

01 /31 /20

Farmers have been enduring the negative effects of a United States federal government-initiated trade war. During that time, commodity prices have plummeted and many farms have had to cease operations.

Some encouraging signs are on the horizon, as Chinese delegates have begun to visit the U.S. to try to bridge the differences.

Howard Halderman, president of Halderman Real Estate and Farm Management, offers his expert view on how the negotiations are proceeding and what is in store for farmers in 2020.

Hi Howard. With rumors swirling around about an end to the trade war with China, we wanted to get your opinion about whether the end is in sight.

Well, I'm afraid that is still an unknown. What we do know is that there is a three-part agreement that has been created. Part one would restore a lot of Chinese commodity purchases, along with the U.S. relaxing tariffs on a number of Chinese imports. But an agreement is not a certainty, although there is hope for it to be in place sometime during 2020.

What is the current administration doing to facilitate an agreement?

Although the U.S. government is working to restore equilibrium to the agricultural markets, we may see resistance from the Chinese. There is a belief among many experts that the Chinese do not want President Trump reelected and that they want to keep the current status quo in place to work against him in the next election.

So, how are commodity prices reacting to the potential cooling of the trade war?

So far, commodity prices have been immune to the news of a potential agreement. There has been so much chatter about this for the past 18 months, and it is clear that the market is discounting speculation. Absent a written agreement, we have been advising our clients not to expect any positive price reaction for commodity prices based on positive news.

Is there any way to protect against protracted negotiations?

Unfortunately, I don't believe so. If it's true that the Chinese would rather deal with a new president, it is conceivable that they would drag out negotiations through the next election, which suggests that an agreement would not be in place before 2021.

But, assuming that an agreement is signed, how would farmers benefit?

By reintroducing China to the market for soybeans and pork, farmers would experience increased demand and higher prices for these commodities. It would be a reversion towards prices that were in effect before the trade war was initiated.

But we are advising our clients not to be too exuberant. One bad outcome for farmers is that China has invested in infrastructure in Brazil to ensure long-term access to soybeans and other commodities. This may in fact shift demand away from U.S. producers and cause prices to adjust downward in the short and medium term.

We do know that Undersecretary of Agriculture Ted McKinney, who is from Indiana, is fighting to restore farm income and sustain a healthy agricultural sector for the country.

For several generations, Halderman Real Estate and Farm Management has been committed to helping farmers and farmland owners navigate challenges posed by trade policies and other external factors. We invite your inquiries about how we can improve your farm operations and inform your farmland investments decisions.