The 90-day U.S.-China trade truce seems to be a step in the right direction of avoiding economic catastrophe. But the collective sigh of relief from food producers might be short-lived if the two countries can't come to a long-term agreement.
Agriculture economist Chad Hart, with Iowa State University, said the announcement is "not a lot to hang your hat on."
"It's good to see we did reach some sort of truce here. It would be nice to have something in writing, but at this stage of the game, a handshake agreement is the best we can do," Hart said. "The proof's in the pudding. There's a lot we don't know yet."
Following the Group of 20 summit in Argentina, President Donald Trump announced Monday the agreement to not raise tariffs on Chinese goods in the next 90 days. The cease-fire stalls tit-for-tat tariffs the U.S. and China have imposed over the past year.
The U.S. was previously set to increase tariffs on $200 billion of Chinese goods from 10 percent to 25 percent on Jan. 1. The deal temporarily keeps tariffs at 10 percent, giving both sides more time for negotiations.
The White House said China has agreed to buy more American goods but did not clearly state which goods or how much. Global stock markets recorded gains Monday as the trade truce shored up investor sentiment.
But stock markets gave up many of the gains Tuesday, with investors citing uncertainty regarding the agreement. The Dow Jones Industrial Average dropped nearly 800 points Tuesday.
"With regard to this administration on this topic, I'm always cautious," Iowa State University Economist Dave Swenson said. "The messaging coming out of this administration is often overly optimistic or muddied. One doesn't know exactly what to expect from this."
Farmers in Iowa, though, experienced relief as soybean prices rallied. Prices climbed higher than $9 per bushel in early trading Monday, following the announcement from the White House that China would buy "substantial" U.S. agriculture products.
"I would say farmers are just glad to see prices spike up a bit here," Hart said. "Not that things have drastically changed yet, but they see more hope in the near future, given that it looks like we're on the path to a longer-term agreement with China. I think the ag industry sees this as the first step in a fairly long process."
Since the imposition of new tariffs, Hart said Iowa farmers have been navigating a market with lower prices and a surplus of grains.
"Farmers are dealing with that at a time where, if you look at the beginning of 2018, they hoped it would be a turnaround year," Hart said. "They've seen lower farm prices for the past five or six years, and farm incomes have dropped. They were hoping for some recovery, but the trade dispute took that recovery off the table."
You have free articles remaining.
But with the trade ceasefire, Hart said farmers may be more optimistic they'll see growth next year.
"A lot of farmers recognize that growth in demand has to come from the international marketplace," he said. "There's good, steady demand for our product in the U.S., but that's not where we see growth in the future. Trade has been a blessing and a curse to farmers. It's a curse right now because it's the biggest problem. But it's a blessing because it offers the greatest opportunities."
Along with the local farm economy, the Quad-Cities' manufacturing industry also has been hit by the unresolved trade dispute, Swenson said, largely due to increased tariffs on imported steel and aluminum.
Following the G-20 meeting, Trump told reporters the leaders of Mexico and Canada have signed an updated trade deal, the U.S.-Mexico-Canada Agreement, or USMCA, that would replace NAFTA.
USMCA requires congressional approval, which analysts have argued could be a challenge. Some economists have criticized the deal for being too similar to NAFTA.
"Right now, steel and aluminum tariffs are probably weighing on Quad-City fortunes more than anything else out there with regard to China," Swenson said. "Resolving that initial round of tariffs will have more to do with the Quad-Cities doing well than anything else. And that hasn't been resolved yet."
Local manufacturers, such as Deere & Co. and Arconic, have faced higher prices due to the tariffs.
"It is too early to be specific about the 90-day truce," Deere spokesman Ken Golden said in a statement. "However, Deere continues to support free and fair-trade policies for our customers, our suppliers and for our company. Free trade plays a critical role in global agriculture markets and on supply chains that leverage manufacturing capabilities in the U.S. and abroad. We continue to encourage the U.S. and China to finalize a timely resolution for a long-term agreement, both for the global agriculture and manufacturing companies."
Despite agreeing to a truce, it remains unclear whether issues that have led to the trade war are being resolved. The White House, for example, has previously argued intellectual property rights need to be negotiated.
Because of the lack of clarity in negotiations, Hart said he sees a long path ahead to resolving the trade dispute.
"Hopefully this will be the first in a series of meetings," Hart said. "You can separate tariffs from a trade agreement. Tariffs can disappear in a short order. But it takes a long time to establish a full trade agreement. It takes ongoing discussion. And that's what's been missing between the U.S. and China over the past three or four months."
The Associated Press contributed to this report.