China Phase One Trade Agreement Update – Jan ’20
The U.S. and China signed their long-anticipated Phase One trade agreement on January 15th, making progress on regulatory restrictions and other nontariff barriers negatively impacting U.S. dairy exports destined to China. Within the Phase One agreement, China has agreed to purchase $36.5 billion worth of U.S. agricultural products throughout 2020 and an additional $43.5 billion worth of products in 2021, increases of $12.5 billion and $19.5 billion, respectively, from 2017 levels. The amount of dairy products contained within the total agricultural product totals remain unclear. 2019 YTD U.S. dairy exports destined to China have declined by 46% on a YOY basis and are on pace to reach a nine year low level, overall. U.S. whey exports destined to China have declined most significantly from the peak levels experienced throughout 2017, accounting for 79% of the total 2019 YTD decline in U.S. dairy exports destined to China. U.S. nonfat dry milk, dry whole milk and cheese exports destined to China have also declined from the 2017 peak levels. The 2019 YTD U.S. market share of total Chinese dairy imports has declined even more significantly, down 53% on a YOY basis through November. The U.S. has accounted for just 6.3% of total Chinese dairy imports throughout the first 11 months of 2019, on pace to reach the lowest level on record. Within the Phase One agreement, neither the U.S. nor China will lower tariff rates, however China has agreed to remove a number of non-tariff barriers including accepting the U.S. dairy-safety system, foregoing the need for Chinese inspections in U.S. facilities which has stymied firms seeking to export to China for several years. China also improved regulatory pathways for imports of U.S. infant formula and extended shelf life milk within the Phase One agreement. Chinese tariffs on U.S. dairy products may be reduced if the two countries agree to a Phase Two follow-up agreement.