The Trump administration achieved a significant policy objective on Wednesday when the President and the Vice Premier of China signed the Phase One Trade agreement. As previously noted in previous market memo’s, China has agreed to purchase at least $40 billion annually over two years of U.S. agricultural products. In exchange, the Trump Administration has agreed not to apply additional tariffs. They have released the text of the agreement, and U.S. citrus is included in the additional buys. Work on Phase Two has begun. However, it is not expected to be completed before the election in November.
For California citrus and most commodities, the retaliatory tariff issue has not been resolved in this agreement. Currently, citrus is experiencing a 50% increase on top of the existing tariffs. This brings the total tariff, including the VAT, to 70%. This has significantly slowed exports to China and put downward pressure on the domestic market.
While not part of the Phase One agreement, the administration believes that it is not in China’s best interests to continue high tariffs on agricultural products that they have agreed to purchase more of. China has generally indicated that they would be open to issuing exemptions to the tariffs, but to date have not removed the citrus tariffs. The next 30 days will be an incredibly important view of how the Chinese government responds now that the deal is signed.
