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DAVID KRUSE

By Staff | Sep 25, 2009

Last week, United States Trade Representative Ron Kirk was advising President Obama to place tariffs on Chinese tires. This week, he was in Brazil, giving a speech saying how, “World economies need to stay on alert to prevent protectionism from hurting a nascent global recovery.”

I happen to agree with that statement, but I cannot place his rhetoric in context with the Obama administration’s trade policy. When Kirk claims to oppose protectionism trade policy, I wouldn’t crudely yell it out in a joint session of Congress, but I would be quietly thinking, “You lie.”

What I see is Doha with no pulse, pending free trade agreements left languishing in purgatory, “Buy American” provisions hurting U.S. business and tariffs going up to block imports. Obama is not going to push anything positive on trade because the unions, who are protectionist, won’t support him on health care.

Somehow the administration seems to think that it can talk about the need to avoid protectionism, while pursuing protectionist policies and all of it can occur in a vacuum without any trade repercussions developing.

Protectionism is not defined solely by whether or not an action taken violates WTO rules. There is room within limits for significant increases in global tariffs, which are protectionist and will negatively reduce trade without violating WTO rules. Protectionism comes when governments block access to markets or penalize imports to benefit domestic industries.

Almost no trade sanctions or tariffs go unanswered. They almost always go tit-for-tat. The U.S. can’t quite bring itself to impose a domestic carbon tax, but is considering such a tax on imports and Europe is ready to reciprocate.

Global Trade Alert, a team of trade analysts supported by an independent think tank, the World Bank and UK government have issued a pessimistic report forecasting a continued rise in protectionist trade measures. “Governments have planned 130 protectionist measures that have yet to be implemented, according to the GTA’s research. These include state aid funds, higher tariffs, immigration restrictions and export subsidies.

According to the GTA report, the number of discriminatory trade laws outnumber liberalizing trade laws by six to one. Governments are applying protectionist measures at the rate of 60 per quarter. More than 90 percent of goods traded in the world have been affected by some sort of protectionist measure.”

With Kirk’s speech in Brazil, the administration portrays itself as believing one thing while doing something else, seemingly thinking that it is playing adept politics. That may be, but it is inept trade policy.

Countries have followed the U.S. lead in growing markets and access since the 1980s as the global economy grew. They will now follow the U.S into an era of protectionism too and that is where this administration is leading despite the pro-forma demurrals.

When China threatened to impose anti-dumping duties on U.S. chicken imports in retaliation for tire tariffs imposed on them, U.S. Agriculture Secretary Tom Vilsack was quick to cry that duties on chicken would not be fair and China was not playing by the rules.

Vilsack and the rest of the Obama administration need to know that there are no rules in a trade war. Truth, justice, good sense all get quickly trashed on the battlefield. All parties think what they are doing is fair or justified relative to what the other is doing.

Once you start down this path, it all gets crazy and crazier and the Obama administration has started down the path with unrealistic expectations and naivete. Its trade policy looks like it was born yesterday. Vilsack better get ready for China to kick him in the teeth. He can cry to the WTO for all the good that will do.

China is our best soy export customer by such a large margin that it is not healthy for us to be that dependent on one customer. China is forecast to buy 38.5 million metric tons of soybeans from us next year. You can add up the annual sales to the next 15 largest U.S. soybean buyers and they don’t equal what China buys. The EU, the second place buyer, bought just over 5 mmts, but says that it will buy fewer U.S. soybeans to avoid GMOs.

U.S. soybean exports have become absolutely totally dependent on China. The U.S. soybean market is essentially being set in Beijing. China supports the price of soybeans domestically to pay its farmers. The price is set so high that U.S. soybeans are cheap for Chinese processors to import.

China wanted to build a reserve supply of soybeans so has encouraged the imports. In response, to the Obama tire tariffs, a Chinese official charged that the U.S. was dumping subsidized soybeans on the Chinese market.

That’s an absurd charge, but it was meant to be a warning that China makes the U.S. soybean market and it can break it anytime it wants to. They now have a soybean reserve and forward purchases committed and could step back from the market anytime they want to for a period of time and if China steps back, it would be like that gecko in the Geico commercial standing under his boss, trying to catch his fall.

Telling China that it is wrong or unfair will be like talking to air. China is going to make the rules. If we want to sell them soybeans, then we should buy their tires. That’s their message and it’s simple.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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