Five years after they were signed, the Phase One China and USMCA agreements have in many ways benefited American agriculture, but their future remains unclear.

By Allison Jenkins

The new year is just beginning, Donald Trump is president, and trade—specifically with Mexico, Canada and China—is a hot topic.

If it seems like déjà vu, that’s because we’ve seen this exact scenario before. In January 2020, during President Trump’s first term in office, he signed both the United States-Mexico-Canada Agreement (USMCA) and the Phase One Economic and Trade Agreement with China.  

USMCA was an overhaul of its predecessor, the 1994 North American Free Trade Agreement (NAFTA), which was widely supported by agriculture for providing increased market access to most agricultural producers. However, not all U.S. agriculture exports enjoyed that same access due to certain products falling under in-country supply management schemes. Further, NAFTA was a product of its time, written in the pre-internet and eCommerce era, which led to issues during the rise of the internet. For agriculture specifically, some of the provisions in NAFTA were no longer up to date with agricultural advancements such as biotechnology and conservation measures, and the agreement needed updating. 

The Phase One China agreement was negotiated in response to tensions that had been escalating since early 2018 when the U.S. imposed tariffs and trade barriers on the Asian country due to concerns about Chinese trade practices. During the resulting trade war between the two countries, the U.S. levied tariffs on $550 billion worth of Chinese products, and China, in turn, set tariffs on $185 billion worth of U.S. goods. Agricultural products, and soy in particular, were targeted in Chinese retaliatory tariffs. 

Five years after they were put in place, the USMCA and China agreements have successfully addressed many of these issues. The Phase One deal, signed Jan. 15, 2020, included provisions to balance trade, curb intellectual property theft and open access to Chinese markets, particularly for U.S. agricultural products. Some of the deal was less “inked on paper” and more a “handshake agreement” that helped resume soy exports; other parts of the deal—like IP theft—remain dubious as to their effectiveness. However, for soybeans, tangible progress was made: China committed to purchasing additional U.S. goods, including soybeans, and both sides agreed to waive tariffs that had been imposed as part of the ongoing trade war. 

The USMCA, signed a couple of weeks later, Jan. 29, 2020, not only continued the free trade environment developed under NAFTA, but also improved intellectual property rights, labor standards and environmental protections while adding provisions for digital commerce and technology such as gene editing.  

These pacts have also played a key role maintaining business among the United States and the signatory countries, which are top markets for agricultural exports, namely soybeans. According to the USDA Foreign Agricultural Service, U.S. soy exports to China fell to 8.2 million metric tons during the low point of the trade war in 2018. In 2020, after Phase One was signed, that number increased to 34.2 MMT. 

“We’ve seen exports to Mexico increase during and after the trade war. Mexico is our No. 2 export market for U.S. soybeans.” says Virginia Houston, American Soybean Association director of government affairs. “While Canada is not a major buyer of whole beans, it is an important customer for soybean meal. And all told, China is a success story for U.S. soy. We’ve worked to establish and grow the Chinese market for more than 40 years, cultivating it into the powerhouse it is for us today.” 

More tariff talks 

Members of the ASA board of directors from five states attended the USMCA trade agreement signing ceremony at the White House in celebration of the new treaty in 2020. From left: Then-ASA president Bill Gordon (MN), ASA Treasurer Brad Kremer (WI), USDA Deputy Secretary Stephen Censky and ASA Governing Committee Members Bret Davis (OH), Brad Doyle (AR) and Daryl Cates (IL).

As the new Trump administration begins to take shape, however, these agreements may be in question. The president has vowed to levy new tariffs on all goods coming from Canada and Mexico as soon as he enters office unless the two nations stem the flow of illegal immigrants and drugs across the border. One proposal calls for 25% import duties from Mexico and Canada, as well as an additional 10% tariff on all Chinese products as part of an “America First” trade package. Trump has also called for a revocation of Permanent Normal Trade Relations (PNTR) status for China, a move that would certainly trigger retaliatory tariffs. 

“We are aggressively monitoring everything President Trump is saying about tariffs,” Houston says. “There are still a lot of unknowns, but we’re trying to position ourselves to make sure that whatever happens has the least negative impact possible on our farmers.” 

Reversing direction on amiable trade relations with China, Mexico and Canada would no doubt be detrimental to U.S. agriculture, says Dr. Scott Gerlt, American Soybean Association chief economist. 

“Mexico and Canada are critical markets for U.S. agriculture, soybeans in particular, so it’s very important to retain trade access there,” he says. “If we were to see a renewed trade war with China, we would not want to lose other key markets at that same time.” 

American farmers suffered tremendous losses during the last U.S.-China trade war, which included tariffs on U.S. imports that reached as high as 80% to 100% on some farm commodities. From mid-2018 to the end of 2019, USDA ERS reports U.S. agricultural exports dropped by more than $27 billion, with China accounting for about 95% of the value lost. Soybean exports accounted for the largest annualized losses with China, totaling $9.4 billion. 

“China is a great example of the work it takes to build a market and how long that investment takes, but also an example of how you can lose such a critical market overnight, which is what happened in 2018,” Houston says. “As a matter of policy, regardless of administration, we oppose the use of tariffs as a negotiating factor because of the negative impacts they can have on both commodity prices and input costs. We feel tariffs are a lose-lose for our farmers. ASA has been active both with the Biden administration and the incoming Trump administration about our association’s position.” 

Under the Phase One agreement, China committed to purchasing an additional $200 billion in U.S. goods over two years, with a large portion dedicated to commodities including soybeans. However, China struggled to meet its ambitious purchase commitments, as the agreement specified that purchases were to be made at “market prices based on commercial considerations.” In addition, many of the deeper issues were left to be addressed in “Phase Two,” which with the pandemic and change of administration has yet to be defined. 

“Phase One, in many ways, gave us a chance to resume more regular trade with China by allowing both sides to declare victory and continue doing business with one another,” Gerlt says. “While we have not seen China buy U.S. soybeans at the same levels it did before the trade war, the agreement helped us reclaim some of those export volumes. Where we go from here remains to be seen, but with the incoming president’s talk of tariffs, I think there’s a chance to look at a Phase Two version of the agreement.” 

One reason for the sluggish rebound in U.S. soybean exports is the fact that China found alternate sources during the trade war. As a result, Brazil became its primary supplier, reaching a peak of 82% soybean exports going to China in 2018. Today, around 70% of Brazil’s soybean exports remain directed to the Chinese market. 

Then-ASA president Bill Gordon (third from right), along with Sen. Joni Ernst, South Dakota Gov. Kristi Noem, Ambassador Terry Branstad, USB leaders and NCGA leaders attended the U.S. China Phase One signing at the White House in January 2020.

“Brazil expanded its soybean production during the trade war, and that production in Brazil has continued to expand, which means there is more competition for the U.S. internationally,” Gerlt says. “At the same time, China’s population is no longer growing. If we gain more market share in China for soy, it is largely going to be because they’ve made a political decision to purchase more U.S. commodities and not because of actual increases in growth in the market itself.”

 Uncertainties abound 

As for the future of Chinese trade relations with the United States, “uncertainty” is the only way to describe the road ahead, Houston says. 

“There has been chatter since Trump was reelected in November about what the next phase of China trade looks like. Is it Phase Two? Is it Phase 1.5? Is it something completely new?” she says. “We do expect that there will be tariffs. He has made no bones about his desire to use tariffs as a tool—as a stick rather than a carrot—but there are question marks about what is actually going to happen.” 

Likewise, the fate of the USMCA also may be up in the air. During the 2024 election, Trump campaigned on a pledge to renegotiate the pact, which is up for review regardless in July 2026. Under an unprecedented clause included in the original agreement, the United States, Mexico, and Canada are required to hold a “joint review” to confirm whether to continue the agreement.  

This review provision was controversial during USMCA negotiations. Typically, free trade deals are indefinite unless one of the signatory countries wishes to pull out, but this clause essentially provides a mechanism to change the deal’s terms in a less disruptive way than threatening outright withdrawal. 

“We are starting to see the three governments gear up for that review,” Houston says. “This is the first time a free trade agreement signed by the U.S. has had a review clause, and there are a lot of unknowns about what that will look like. Overall, we feel USMCA has been very helpful for soy growers, and we want to see it maintained.” 

Whether it is China, Mexico, Canada or other international market, Gerlt says there is one indisputable fact about U.S. agricultural trade: It is crucial to U.S. farmers’ success. 

“If we did not have strong global trade, we would only need about half the soybean acres we currently have in production; fifty percent of our production is bound for exports,” Gerlt says. “U.S. farmers are very good at producing bountiful crops on existing farm acres, so we are able to supply soy to food-deficit areas around the world. This means soy trade is vital not only to ensure our farmers have markets for their products but also for global food security.”