In the end hardly anyone believed that Donald Trump could present a trade agreement with China before the next presidential election. The situation seemed too deadlocked and too often Trump had announced a breakthrough that in the end was not one. But this time, a trade agreement was signed at the end (here is our commentary on this), which, among other things, provides for the purchase of raw materials in the USA to the value of around USD 100 billion. And yet, after the deal was announced, their prices are falling. What is behind this?
Donald Trump won the 2016 election not least because he promised many struggling regions that he would bring them back into the spotlight. Coal, steel, agricultural products, Trump wanted to restore them to their former glory. His full-bodied promises did not turn out to be much. Despite prohibitively high tariffs on many metal imports, the US steel industry is now more pessimistic about the future than it was in 2018. Various plant closures have even been announced. Trump has not been able to help the US coal industry either so far. Peabody, the largest coal producer in the world, came out of its own insolvency proceedings shortly after Trump’s election. The share price has now been quartered since the re-listing on the stock exchange. More and more institutional investors are refraining from investing in the coal industry. Most recently, the world’s largest asset manager, Blackrock.
US farmers are sceptical whether China is actually buying more goods
Then there is agriculture, to which Trump wanted to open up the huge Chinese market. In fact, China is dependent on the import of agricultural products. And not just since the swine fever destroyed the Chinese pig livestock. But during the trade war, China erected high customs barriers that make imports from the USA uneconomic. This is now set to change, at least for some agricultural products. China has committed itself to import an additional 32 billion US Dollars worth of agricultural products from the USA in the next two years. In view of the fact that in 2017 the country only imported agricultural products worth 7.5 billion from the US. This is a comparatively huge step for US farmers. But the market is sceptical. Especially because the parts of the trade agreement that are to remain secret, of all things, are those that break down which groups of goods are to be in greater demand and to what extent.
This makes it easy for both sides to report success in the end, without anyone being able to determine whether the targets were even reached. The National Farmers Union does not yet believe in the success of Trump’s brutal negotiating tactics: “We are sceptical about the number of agreements that have been made and then broken over the past two years. After all, the National Farmers Union speaks for half of all family-run farms in the USA. As long as no concrete details are published, the National Farmers Union is skeptical whether the successes were worth the trade war. As a consequence, the prices of many agricultural commodities in the USA are falling today, in line with the motto “Buy the rumor, sell the news”.
Strange: The USA wants to export raw materials that they have to import themselves
Agricultural commodities are obviously not the only area covered by the trade agreement. Nor is it the only area that casts doubt on the validity of the agreement. Rare earths are also to be exported. In other words, the very raw material for which China has up to now enjoyed a virtual monopoly. And exports are not to be made from China to the USA, but in the opposite direction. In the future, scandium and yttrium will leave the USA for China. These are two rare earths that are mainly used in military equipment. It is surprising that the USA is to sell these raw materials to a state like China. According to an analysis by the US Department of Defense, China is striving to make up for decisive core advantages of the US Army in operational and technical terms.
And the amazement becomes even greater when you learn that not a single gram of scandium was mined in the USA in 2018. The amazement will certainly be heightened when you learn that in 2018 the USA was only able to cover 5% of its annual consumption of yttrium from its own production. The remaining 95% had to be imported. So how are exports of scandium and yttrium to China supposed to increase when the USA itself has to import 100% and 95% of its needs? By the way, scandium is only mined in China, Ukraine and Russia. The example of rare earths shows that China and the US may be cobbling together a trade agreement primarily to get out of a trade war. Rather than to actually trade the goods in the agreement more extensively.