Market Unimpressed By China's Soybean Purchase

President Donald Trump scored a trade war victory Wednesday after China made its first major soybean purchase from the U.S. since retaliating against Trump’s tariffs in July by blocking imports of U.S. agricultural products.

While the purchase may be a small step in the right direction amid rising trade tensions, analysts say the latest soybean order is nowhere near the level of business U.S. farmers were getting from China prior to the trade spat. 

The Numbers

China announced on Wednesday that it has purchased more than 1.5 million tons of U.S. soybeans following a meeting between Trump and Chinese President Xi Jinping at the G20 summit earlier this month.

The latest purchase is part of the deal the two nations negotiated at G20 to delay Trump’s plan to raise tariffs on Chinese goods by 90 days while negotiations continue.

Soybeans represent the largest U.S. agricultural export. In 2017, China purchased roughly 60 percent of the $12.25 billion in U.S. soybean exports. The purchase announced on Wednesday is valued at about $500 million, about 4 percent of China’s total 2017 purchases.

Analyst Take

Height Securities analyst Clayton Allen said Thursday there is another huge caveat to the latest Chinese soybean deal.

“In line with our expectations, the purchases, expected to be delivered at some point in Q1, fall short of pre-tariff import volumes and will go to state-run importers,” Clayton said.

“This allows China to increase imports without moving to lift the tariffs on private importers, and should be viewed as a unique arrangement rather than a return to the pre-tariff status quo.”

China’s latest soybean deal could be part of a longer-term strategy to string Trump along by giving him just enough concessions to continue delaying his tariff hikes and hoping that Trump eventually loses political support for the trade war, Allen said. 

Market Skeptical

The ongoing trade war is one of the primary causes of concern for U.S. investors that has driven the SPDR S&P 500 ETF Trust SPY down 8.4 percent in the past three months.

The S&P 500 traded lower by another 0.4 percent on Thursday following the announcement of the soybean deal.

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