A few days ago, President Donald Trump posted a tweet about the deal he made with China. According to the POTUS, it is the “greatest and biggest deal ever made for our Great Patriot Farmers.”
The deal would provide American farmers with much-needed relief as it involves China buying as much as $50 billion worth of U.S. agricultural products annually. In return, the U.S. will delay the implementation of additional tariffs on $250 billion worth of Chinese merchandise.
While many questioned the validity of the deal, some looked at the fundamentals of the exchange and they were not impressed. For instance, Peter Schiff, chief executive of Euro Pacific Capital, saw that there was no victory in the deal. The trader appears to have done the math and concluded that the U.S. came home empty-handed. Well, we did our due diligence and believe that Schiff’s claims are inaccurate.
The CEO of Euro Pacific Capital took to Twitter to express his disappointment on phase one of the trade deal. According to Schiff, U.S. exports of agricultural goods to China would be back to the same level they would have been had the trade war never happened. In other words, the trade spat that dragged on for over a year was for nothing. That’s because it failed to give the U.S. any advantage.
We scoured the comment section to see if Schiff or any of his followers provided the numbers to support the assertion. Unfortunately, we mostly found memes and more unsubstantiated opinions.
The absence of facts motivated us to double-check Schiff’s claims. It didn’t take us long to come to the conclusion that Trump may not be overstating the value of the phase one deal.
If the deal actually pushes through, Trump might be correct to say that American farmers should start considering getting bigger tractors. That’s because China’s $50 billion annual purchase of U.S. agricultural products is a huge jump from the level of Chinese imports before the trade war started.
According to the Minnesota Department of Agriculture, U.S. agricultural exports to China amounted to $23.8 billion in 2017. If Trump succeeds in phase one of the trade deal, agricultural exports to China would climb by over 110% in two years. This is actually a big deal for U.S. farmers.
Now if we look at Schiff’s statements that agricultural exports would be back to the level before the trade war began, then we’ll have to consider the annual growth rate of agricultural exports to China.
A quick look at the chart shows that U.S. agricultural exports have been in a strong uptrend for 17 years. However, they have grown at a modest rate per annum. We did the math and discovered that from 2000 to 2017, the growth rate of U.S agricultural exports stands at 12.96% per year.
This means that in 2018, agricultural exports to China should have grown to about $26.88 billion sans the trade war. In 2019, that figure should have increased to roughly $30.37 billion. Those are optimistic projections since the export trend has been flat-lining for the last three years. The fact that Trump was able to bring it all the way up to $50 billion is a huge victory for American farmers.
This is why one should not take everything at face value. Even if a statement comes from a CEO of an investment firm.
Last modified: September 23, 2020 1:09 PM