Trade Deals Signed, Now What?

On Thursday the U.S. Senate overwhelmingly ratified the U.S.-Mexico-Canada Agreement (USMCA), an update to the 90’s-era NAFTA deal. The new pact is largely similar to NAFTA but has some key provisions to support U.S. auto manufacturers, protect the environment, and update intellectual property safeguards. U.S. dairy producers should also see increased exports, but the deal largely should leave commodities markets unaffected.

More crucially, on Wednesday, President Trump signed the Phase One Trade Agreement between the United States and China, a substantial move toward ending the trade war between the two countries.

The deal reduces some of the tariffs placed on Chinese goods in exchange for China updating its policies around intellectual property and agreeing to purchase more U.S. goods, especially farm products. Under the agreement, the Chinese are committing to nearly double their purchases of U.S. agricultural goods, which would be a substantial boost to U.S. farmers.

However, quickly after penning the deal, Chinese Vice Premier Liu He said that China’s purchases would be driven by “market demand in China,” a worrying signal that they may not meet commitments.

Exacerbating a normal “buy the rumor, sell the fact” selloff, these comments sent agricultural markets tumbling, as the long-awaited deal may fall short of hopes. Soybeans, one of the markets most sensitive to Chinese demand, dropped over 20 cents per bushel to a one-month low, trading Friday for $9.25 per bushel.