Can China double its farm purchases from the US over the next two years?
The graphical presentation above gives you an idea of how much it will take for China to reach the reported purchases of $40 billion to $50 billion annually.
Although it's about a ~150% jump from this year's run rate, you have to remember that 2018 and 2019 purchases have been marred by the recent trade dispute.
But even so, if you trace it back to pre-trade war levels, it would mean China having to almost double their typical annual purchases from the US. Is that even possible?
Bloomberg is out with a report saying that it may be feasible but China is possibly doing a lot of shifting around the maths involved, citing people familiar with Beijing's plans.
For one, China is looking to restart purchases of ethanol by lifting/waiving tariffs on the fuel. But they are also considering to re-route trade that currently passes through Hong Kong to mainland ports instead.
The second point could enable around $10 billion a year in goods to be booked by China as the US does not count shipments that go through Hong Kong as part of its trade with Beijing. That's pretty much just a "left pocket to right pocket" adjustment for China.
Another plausible way for China to boost its imports from the US is to waive more of its tariffs to domestic buyers of soybeans and pork - something which they have been said to be doing as mentioned here as well earlier today.
Of course, the easiest step is for China to alter its supply chains and direct trade to the US instead of other countries that it has existing business with - but I doubt that China will shake things up in such a big way to heavily affect that.
If anything, I expect China to gradually increase the farm purchases on a "best effort basis" but still keep things short of meeting its pledge to the US. After all, this is just Phase One of this entire trade war - a deal that represents a symbolic gesture.
It would be prudent for China to not give away too much leverage or hand the US too much power but at the same time, it puts the temporary trade truce at risk.
However, in the big picture, we all know that this trade truce is not going to be built to last. Hence, we can see both countries try to play nice for the time being before this all blows up once again - could be before or after the US election.
So, the question isn't how can or if China can deliver on its pledge to purchase more US farm products. The real question is when will either country put a stop to the trade truce and break the facade that trade relations are "making progress"?
