I have been posing a lot of questions recently about trade with China needing answers, and we are getting some from the Trump/Xi summit. The really big question was how far that President Trump and Xi would go in the trade war, and the answer is that neither wanted to disengage fully on trade. Each for their own reasons sought a trade deal. We will remain engaged on trade with each other.

I do believe that Trump miscalculated the leverage that he had over China and had expected a more lopsided result in his favor. Tik-Tok was not resolved and no high-end computer chips were committed to China. This handshake “deal” is just a pause in the confrontation that temporarily resolves some superficial issues without getting to the heart of the challenge. The confrontation is not going away, and competition, posturing and positioning will continue. Neither Trump or China was on the hill yet that they were willing to die on or allowed them to slay their opponent. Hopefully this agreement lasts longer than the one in Gaza.

The DEAL appears to be that China gets a 10% reduction in the tariff, now 20% on fentanyl reducing their overall tariff to 47%. That is still a hefty tariff. Both sides back off the port fees, Tik-Tok gets kicked down the road, China agrees to buy U.S. ag products (specifically soybeans and sorghum) and energy, and the big thing for us is that the rare earth/magnet license restrictions are paused for a year. That makes this a one-year term sheet. These restrictions are the aces in China’s hand. They tie Trumps hands more than he will ever admit. Now we are left with a lot more questions about details. Will Phase 2 be implemented like Phase 1? It is believed to be non-binding, which Phase One turned out to be. Treasury Secretary Bessent says that China agreed to buy 12 mmts of soybeans before January and 25 mmts each year for three years. That, of course, would be supportive to the market allowing an acreage shift from corn to soybeans. The trade will be looking for evidence of these beginning purchases. They are going to have to find some way to buy some U.S. soybeans or Trump will quickly sour on them again.

Bessent also said that China and other countries would buy 1.6 billion bushels of our soybeans. USDA had U.S. soybean exports at 1.685 billion in the September report. These differing numbers will have to be reconciled. Are they talking calendar or marketing years? So far, all of the information on soybean purchase commitments has come from Bessent, not from China. The market rallied on the Bessent news but then this is what it figured out … (from Brian Grete): “Perspective: U.S. soybean shipments to China totaled 5.9 MMT through July (all came in the first five months of 2025). Adding 12 MMT would push that to 17.9 MMT. The 10-year average (2015-24) was 27.1 MMT per year, so 25 MMT would be ~2 MMT shy of average. If you remove 2018 and 2019 — Trade War 1 with China — the average would be 30 MMT per year, so 25 MMT would be 5 MMT shy.”

China effectively parried every thrust from port fees to high tariffs with ag trade and rare earth export licenses. They offer a year-long delay in restricting critical rare earth export license, which is not enough time for countries to develop their own rare earths processing industries. They can shut them off at any time, while Trump can reciprocate with added tariffs and the whole thing will blow up in a trade conflagration making Smoot-Hawley look benign. They backed away from that for now. Their rare earths leverage will likely last for three or more years before others can build enough rare earths processing so this will remain a national security issue for us.

This could resurface quickly as a flash point. China had gained an understanding of President Trump that they used to their advantage. They hit back, first anticipating where Trump’s next thrust would come at them from, preemptively. Trump responded exactly as expected. Both are dealing with internal economic issues and are not strong enough to stand the shock of total disengagement. Trump gets temporarily renewed access to the rare earths and a sustainable tariff revenue stream. Set the tariff rate too high and the golden goose dies. There is a goldilocks level for tariff rates where tariff income is maximized. For the time being, that is the objective Trump wants to arrive at. China’s objective was to get a tariff rate that they could live with. China’s 47% makes the tariff rate on Canada and Brazil look ludicrous.

Trump’s world trade war changed many dynamics relative to the global perception of the U.S. The U.S. retrenchment from the global system will continue and China will expand its profile in the void we create. China was better prepared to survive this second attack in Trump’s trade war, and now each side has pulled back to lick its wounds and catch their breath. This is an agreement of terms for a temporary cessation of hostilities in an ongoing trade war.

We can’t say that China is no longer buying U.S. soybeans anymore, as they bought several cargos to consummate the agreement. China is well supplied with ag products, including reserves. China will not pay a premium price for U.S. soybeans and the cargos purchased recently were bought by a state entity at a price lower than in Brazil. The rally since boosted U.S. prices, so our advantage with Brazil disappeared. They do not need 12 mmts of our soybeans to reach Brazilian new crop early next year. If bought, it will be by Chinese state entities and would build Chinese reserves, which gives them more cushion if things go south again. China should put a floor of support under our soybean market anytime they get cheaper than soybeans in Brazil.

Phase One was not what it was touted to be when it was announced. It was a suggestion with loopholes in compliance, so that China can technically claim it complied with it despite falling far short of topline metrics. It took a while for that to get figured out and the details of the new deal will likewise have to be sorted out. I would hold off on buying more land and tractors because of this deal. Farmers would like to be sure that we can keep the farms and tractors that we have. How big will those Trump ACHs be? We are getting some commitments for ag purchases in other trade agreements, but so far, the collective amount in them is really no different than what they have been historically buying. It may just get us back to where we started. That trade and a Trump farm aid-ACH look to be where this sorts out.