LONGVIEW — A tentative trade agreement between the U.S. and China could restore a major grain trading partner for local ports in the new year, potentially wrapping up a 21-month trade war between those two countries.
The “phase one” agreement, which was released Dec. 13 and slated for a presidential signature Jan. 15, cuts some U.S.-imposed tariffs on China and sets goals for China to significantly increase purchases of America products and services over the next two years, including a record amount of U.S. agricultural products, according to reports by Reuters.
But despite China’s promise to buy an average of $40 billion of American farm products annually over the next two years — nearly double pre-trade war numbers — local port officials are cautious and a bit skeptical. They predict that grain exports likely will recover gradually, and they’re not expecting a huge surge of additional business any time soon.
“I think our expectation would be to get back to normal year if this deal goes through,” said Christian Clay, Port of Longview’s business development director. “I think the stock market has shown this is a positive step forward … but it will be a slow recovery.”
Grain handling operations at the port created nearly 500 jobs in 2018, according to an economic impact study. And grain exports account for almost 25 percent of the port’s annual operating revenue.
Longview is one of two Cowlitz County ports with grain export terminals on the Columbia-Snake River system, the nation’s largest exporter of wheat. (Figures for the Port of Kalama, which hosts two grain export terminals, were not immediately available.) More than half of all U.S. wheat ships through the river system, which also holds the number two spot for corn and soybeans export volumes.
The trade war caused steep declines in the American grain market, lowering prices for farmers and slashing export tonnage at local ports.
“When the tariffs went on almost two years ago, our wheat exports (to China) went to zero,” said Glen Squires, CEO of the Washington Grain Commission.
In 2019, the Port of Longview shipped 1.2 million tons of grain to China, or 40 percent of its pre-trade war level of 3.1 million tons in 2017, spokeswoman Ashley Helenberg said. (Tonnage numbers are based on early year-end estimates, and could change once an official count is released later this month.)
Among the port’s grain exports, soybeans were hit especially hard, dropping about 65 percent between 2017 and mid-2019. However, Clay said Friday that a push to export more soybeans near the end of the year has likely set the commodity back on track to meet its average tonnage goal.
The trade agreement is a “positive step forward” because it could ease U.S. trade relations with China and encourage the country to begin importing American grain products again, Clay said. Moreover, it could lead to a more certain trading climate, which makes buyers and sellers more wiling to participate in global trade.
However, the agreement is not a “panacea,” Clay said. For starters, its unlikely China will actually meet its goal to buy an average of $40 billion of U.S. agriculture products annually over the next two years.
“They are talking $40 billion to $50 billion of (agriculture products) coming back to China, but we’ve never done that in the history of the U.S. We’ve never shipped more than $30 billion worth,” Clay said. “That’d be pretty ambitious to say we will come back and do that much.”
Instead, China will probably buy enough grain to meet its country’s needs, Clay said. That’s still a positive for the port, but it might not provide as big of a boost as it appears on paper.
China has also found “substitute” grain suppliers in markets including Argentina and Brazil, and those new suppliers “won’t want to give up the market share they just claimed,” Clay said.
The grain market is also dependent on weather conditions, crop yields and pricing, all factors that will play a role next year, Clay said.
Successfully predicting export success is “one of those things you just can’t pin all on China. There are so many different things that tie into the market,” Clay said.
Squires, the grain commission CEO, agreed that the trade deal “sounds like a step in the right direction,” but he also maintains a dose of skepticism.
“China buys in large vessels, so that’s good for the port system and agriculture. We would anticipate wheat would be part of that,” Squires said. “If it comes to fruition — if it’s not just talk, but it actually happens — that would be a positive.”
The trade war officially started on July 2018, though tension had been building long before that. Squires said China stopped importing American wheat even before tariffs were applied to the commodity.
For months, the U.S. and China took turns implementing retaliatory tariffs, making it more expenses for businesses in both countries to import goods.
President Donald Trump is expected to sign the phase one agreement Jan. 15. He plans to meet with Chinese officials afterward to start discussion on a “phase two” deal, which will likely cover American concerns with China’s industrial policy, subsidies for state-owned industries and intellectual property violations.
Corporate representatives with Kalama Export declined to comment on the trade war “until things are flushed out.”
