There It Is

Written by SK Ashby

Trump announced that he has secured the "greatest and biggest deal ever" for American farmers in an agreement that supposedly includes Chinese purchases of up to $50 billion in American agricultural goods, but that deal only exists in theory -- not writing.

Actually, it may not even exist in theory.

Agricultural purchases of that high volume may not be part of "Phase 1" of Trump's fake deal and are linked to a reduction or elimination of tariffs.

From Bloomberg:

Beijing wants a rollback in tariffs in its trade war with the U.S. before China can feasibly agree to buy as much as $50 billion of American agriculture products that President Donald Trump claims are part of an initial deal, people familiar with the matter said.

The condition highlights how far apart Washington and Beijing remain, even after reaching the handshake accord touted by the U.S. last week. Washington had said China, which imported about $20 billion of U.S. farm goods in 2017, agreed to make large agricultural purchases in exchange for relief on upcoming tariffs. Beijing’s position makes a deal more complex than initially described.

No shit?

As we laid out yesterday, if this is not part of "Phase 1," it will never happen because there will never be a Phase 2.

China's state-owned importers may slightly increase purchases of American agricultural goods in exchange for Trump's order not to increase tariffs on $250 billion in Chinese goods from 25 to 30 percent, but those purchases -- if they happen -- will likely be negligible.

Given that China only purchased $20 billion in American farm goods before Trump's trade war began, I think it's reasonable to have strong doubts that their purchases would increase to $50 billion even if Trump's trade war ended tomorrow. It's not impossible, but it's very unlikely that markets shuttered by Trump would not only reopen but also more than double their purchases.

To be clear, Chinese officials have not actually been as specific as Trump and have not said they would purchase an exact amount. Right now, the Trump White House is the only source we have for the $50 billion figure and they are not a reliable source.

When Trump learns that China isn't going to immediately purchase this amount of goods (even though he's the one who made it up) he could very well escalate again. It has been our recent experience that Trump escalates when China does not follow through on commitments they never actually made.