Trading with China

Alabama’s agriculture community has seen friction decrease, prices increase since U.S. signed Phase I agreement.

The U.S.-China trade relationship has always had its share of ups and downs.

From the moment a bilateral trade agreement was signed between the two in 1979, there have been highs and lows — hundreds of billions of dollars in trade each year, but not without speed bumps and rough roads along the way.

Wendy Yeager produces peanuts, soybeans, cotton and milo on her 1,000-acre farm near Selma.

Greg Canfield, Alabama’s secretary of Commerce, likens the tenuous relationship to a porcelain doll.

“It’s something that everybody recognizes as something that’s important, but it’s a fragile relationship,” he says. “We have two different types of political structures that are underpinning how these two nations are governed, and that sometimes creates friction and challenges in terms of having a fair trade relationship.”

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That most recently has been evident the past few years, as the Trump administration has negotiated with China, resulting first in tariffs that hurt sectors in both economies but then an agreement in January that loosened some restrictions and led to more trade.

That agreement, the Phase I Agreement, was particularly welcome news for Alabama farmers because it included a deal for China to purchase $36 billion in U.S. agricultural products in 2020.

“They are buying, particularly soybeans, corn, cotton and sorghum,” Jimmy Parnell, president and CEO of the Alabama Farmers Federation, said in September. “They’re not buying at the level I’d like to see, but we’re seeing some progress.  … They’re
nowhere near the $36 billion, but if they continue like they have the past 30 days, they could be there at year end. It’s not impossible to see them holding up their end of that Phase I agreement.”

That’s music to the ears of farmers like Wendy Yeager, whose 1,000 acres in Orrville, near Selma, produce peanuts, cotton, soybeans and milo (grain sorghum).“Soybeans and cotton were the two crops the trade tensions affected the most,” she says. “But we have had some upswings in the market, and we secured prices on our crops that were better than last year.”

Those upswings have come after the Phase I Agreement. Before that, Yeager and others, farmers and non-farmers alike, were seeing the effects of the trade war with China. Austria-based Lenzing, for instance, which had planned a $300 million expansion in Axis, near Mobile, chose to expand at a site in Thailand instead, citing looming tariffs as a reason for the change of heart.

It has been a “trying time,” Parnell acknowledges.

“It’s pretty difficult anytime you’re negotiating,” he says. “They can play hardball. … The sector that most likely over the years traded the most with foreign governments has been agriculture products. We basically produce more agriculture and forestry products in the U.S. than we can consume, so about 20-30% profit goes to other countries.” 

There’s limited data on Alabama-specific products, Parnell says, but he believes the state numbers are fairly similar to the national numbers.

Trade with China is important in a number of areas in the state, Canfield says.

“Obviously, China has been, from a trade perspective for our state, a very important export destination for a variety of different reasons,” he says. “It cuts across different sectors of our economy, primarily agriculture and transportation equipment, which includes automotive and aerospace. You’ll also find that Alabama’s economy was pretty engaged in exporting paper products and other wood products to China. A lot of our economy is based on exporting to China.”

So when the trade wars began, with trade restrictions tightened and tariffs implemented, “it really had a negative impact on Alabama’s exports to China,” Canfield says. “It wasn’t like you took the faucet and turned it off, but you were turning that faucet pretty quickly. It took two or three months for it to show up in our data, and it had a significant impact on 2019’s numbers.”

The trade wars impacted Alabama’s exports of poultry, soybeans, forest products and some grains, Canfield says.

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Alabama Gov. Kay Ivey spoke to the White House and others to educate the administration on the impact of exports to China on Alabama’s economy, and it was “well received,” says Canfield, who was invited to the signing of the Phase I Agreement.

“That was the beginning, and it began to show up in our numbers almost immediately,” he says. In March 2020, for example, exports from Alabama to China increased 44.7% over March 2019, including huge jumps in transportation equipment and agriculture products.

Parnell and his team have worked with members of the Trump administration, and, even in the middle of negotiations, have been “very supportive of what they’re trying to do.

“We have definitely been out-traded as a country over the years, and, in particular, agriculture products have been out-traded,” he says. “They’re trying to make it fair. They’re trying to make sure that U.S. interests are acknowledged and protected and that we’re just not taken advantage of.”

Agriculture, in particular, has been at the forefront of President Donald Trump’s trade policy, Parnell adds.

“In the past, … they were so focused on what I’d call ‘sexy trade’ — computers or cars or whatever — and agriculture was not a focus,” he says. “With the Trump administration, I feel like agriculture has been on the cutting-edge of those negotiations. We, as an industry, have been given kind of a front-row seat into those negotiations.”

Mercedes-Benz U.S. International produces the GLS SUV, which is among its exports to China and other countries.

Yeager, too, thinks the administration has been representing agriculture interests well.

“President Trump and his team have done a great job negotiating with China,” Yeager says. “Whether it’s trade with China or any other country, we want the best for agriculture as a whole.”

And Alabama’s farmers want to continue doing business with China.

Automotive exports also were affected by the U.S./China negotiations.

“These are not things that are going to just happen overnight,” Yeager says. “The groundwork that President Trump and his team has laid has taken time, therefore it’s going to take us time to recover in the world market. It doesn’t happen in two days.
It doesn’t happen in two weeks. It takes time to recover.”

“They are a large consumer of our goods,” Parnell says. “I do think they need our product, and that’s the other side. They have a huge population and have had some challenges with their own agriculture production … They need food to sell that population.”

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