Is China sticking to the trade deal with the US?

As the political spat between the US and China escalates, investors are wondering whether the trade deal signed in late 2019 will fall victim to the rising discord.

Looking for early signs of this risk, markets are monitoring data on China’s imports of US agricultural products, and especially of soybeans. Increasing those imports was an important part of the new trade deal, so failure to comply would suggest China is not sticking to its commitments.

Looking at the latest monthly data on soybean imports could suggest that this is the case. Imports from Brazil, the other key supplier, have been high in the recent months while imports from the US have been low.

But observing the latest months in isolation misses the highly seasonal nature of Chinese soybean imports. China imports soybeans from the US in the autumn and winter months (i.e. after the US harvest) and from Brazil in the spring and summer (after the harvest in the southern hemisphere).

Even before the trade war, China imported very few soybeans from the US at this time of the year, so the current low numbers do not indicate that China is disregarding its end of the trade deal.

An interesting question that remains, however, is whether US agricultural producers will actually be able to produce as much as China has committed to buy. This will depend on whether US farmers planted enough and on local US demand, but that will likely only be known after the US elections. In any case, it may be the US that terminates the new trade deal if political tensions with China continue to escalate.