It might not yet be December, but when things are all said and done the story of the year in agriculture for 2018 will be the U.S./China trade war. We have seen a a tit-for-tat tariff battle, shifting of traditional export pathways, and increased subsidy programs attempting to cover market losses while longer-term repairs are in the works.
U.S. President Donald Trump and Chinese President Xi Jingping have agreed to meet at the G20 summit in late November, and you can bet trade will be on the agenda. Agriculture in the United States is hopeful that soybean and pork exports will immediately be the benefactor of the potential warmer relationship between the two economic super powers.
Like we have seen with past Trump trade deals, critics believe that he is more about getting a deal and boasting of the perceived improvements than the actual facts of the deal. We saw this “shallow fix” with the South Korea-United States Free Trade Agreement (KORUS), and in some ways the North Korea nuclear summit, depending on your perspective.
With so much focus on the trade deficit, the U.S. president will definitely be looking for a guarantee of import increases from the Chinese government, but will that be enough for people to call it a win?
Farmers have been told that there are structural changes to be fixed, and their patience is required to allow the White House to fulfill their ultimate mission. Heather Long, Economics Correspondent for the Washington Post wrote back in the spring that the list of U.S. asks is substantial. Here is a sliver of what the U.S. is looking for.
- China will cut the $336 billion U.S.-China trade deficit by at least $200 billion by 2020, a 60% reduction;
- China will stop subsidizing tech companies;
- China will cease stealing U.S. intellectual property (IP);
- China will cut its tariffs on U.S. goods by 2020;
- China will not retaliate against the United States (including against U.S. farmers); and,
- The Chinese government will open China to more U.S. investment.
This doesn’t even take into consideration some of the human rights changes that conservatives, such as former Prime Minister Stephen Harper, have talked about. There is currently a growing concern about China’s handling of thousands of Uyghurs and other Muslims that have been detained in a growing network of indoctrination centres. President Xi’s track record on human rights and freedoms is not in line with Trump’s description that he is a “great guy.”
With that extensive list, the expectation has been that a resolution would be distant but the pay off over the long term would be worth it. With Trump’s trade team roster this long term fix has been the plan all along. With USTR Rober Lighthizer, Secretary of Commerce Wilbur Ross and Director of the White House National Trade Council Peter Navarro are all very hawkish on China and seek long term change.
Last week, we saw the U.S. president tweet that there is reason for optimism:
Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea!
— Donald J. Trump (@realDonaldTrump) November 1, 2018
For farmers, this is great news, and the market responded accordingly as it popped to the upside showing exactly what could be, post-deal.
If President Trump does decide to forgo some of the big structural changes, such as IP theft, and look for shorter-term economic wins instead, will farmers be asking, “was all this pain worth it?”
What if IP theft was a White House justification to gain the political opponent of China but in reality nothing changes but China threatening to “work on it?”
The U.S. trade deficit hit record levels in September which potentially indicates a couple things. Although Americans like the concept of “buy American” the actual numbers prove differently. The tariff battle has not changed the trade deficit like Tump wanted. The Wall Street Journal had a story last week saying that analysts “expect the deficit to continue to widen in the coming months.”
Trump has focused on trade deficits so much in the last two years, and the score is increasing against him. When the U.S. and China started applying tariffs on each other, trade lawyers like Scott Lincicome predicted this ballooning of the trade deficit. Is there a chance that the increasing trade deficit with China is impacting the pace and how much change that Trump really seeks?
No matter what any of us think about Trump’s China strategy, his stated grievances are agreed upon by many countries. Whether it’s IP theft, human rights, Internet hacking, or election tampering, China is not the friendly icon of open and free markets like President Xi attempts to convince us of. In Stephen Harper’s book Right Here Right Now, he also reflects on the naivety of allowing China into the WTO.
The choice for Trump is simple: fix China’s practices as promised, or abandon real change and just get a deal to increase exports.
If a shallow deal is reached farmers will no doubt be happy that soybean exports to China will resume but they should also wonder if the last six months of turmoil in the soybean market was really worth it.
Below, hear a great Agritalk free-for-all segment where the panel discuss the complexities of the U.S. and China trade talks as the G20 approaches. The panel includes Chip Flory, Jim Wiesemeyer, Pam Johnson,and myself.