This is the second of a three-part series.
Given the prospects for Donald Trump winning the GOP nomination it will quickly become a matter, not so much about whether you are “for him or agin him” but what are we going to do about him in the Ag sector?
“President” Trump’s stated policy objectives will be a market factor.
According to Donald Trump, every time that we get too good of a deal on something being sold to us by a foreign trade partner and we buy more stuff from them than they buy from us, that makes the leaders in Washington who go along with this idiots … and we are letting China, Japan and Mexico steal from us.
In other words, we are stupid to buy stuff cheaper overseas and should instead adopt a nativism/protectionist trade policy.
That is an interesting concept of trade that I don’t think will win a Nobel Prize for economics, but is definitely in sync with the protectionist sentiment now blossoming in the U.S. reaping political rewards for those who champion it.
Trade has become another scapegoat for economic unhappiness, something to blame for income inequality. It is a component of native sentiment being promoted by the leading candidates in both political parties today.
It is something that they agree on.
The ag sector is positioned crossways to protectionist trade sentiment. The ag sector has benefited greatly from trade, on the winning side of the deal. Ag trade wins.
We have a net ag trade surplus. We are winners. Trump’s trade policy would be certain to make us losers.
Trump has threatened to impose 40 to 45 percent tariffs on Chinese and Japanese imports along with the 35 percent tariff on Mexico. Mexico is our No. 1 trade partner for buying U.S. corn and pork, No. 2 on beef.
Half of U.S. soybeans are exported, most to China. Japan has often been our No.1 overall ag export buyer and is never very far down the list.
Exports added $62 to the value of a hog and $297 to the value of a steer in 2014. Exports are an irreplaceable component of our demand, supporting U.S. farm income and given any reasonable understanding of the world economy, exports are the future opportunity for economic growth for the ag sector.
Exports to China make or break the value of soybeans, sorghum and DDGs. Take them away and we will have another U.S. farm economy disaster.
The TPP is critical to future U.S. ag export demand. It is one thing for a political candidate to oppose TPP as Sanders/Clinton/Trump/ Cruz do, but Donald takes it to a new level by threatening the tariffs on China and Japan that would result in a trade war.
None of our major ag exporters would tolerate that kind of tariff treatment. There would be abrupt and brutal retaliation which would certainly be directed at U.S. ag exports.
Mexico would be in an economic depression with plunging GDP as a result of Trump’s mass deportation of Hispanic workers and tariffs imposed on Mexican imports to the U.S.
The Mexican economy would be severely injured, negatively impacting its ability to buy ag products from us even if they wanted to, which they will not want to after what we have done to them.
They are going to be broke and hungry and really ticked off. They will take whatever business they have elsewhere. They will buy Brazilian corn, pork and beef instead. To heck with the gringos.
The primary reason that the U.S. can compete effectively with South America is that we have a significantly lower cost farm-to-market transportation infrastructure to move our ag products into the world market than they have in South America.
S.A. talks a lot more about building new roads and railroads in Brazil than it actually builds.
Japan’s economy is already on the ropes and China is desperately trying to sustain an illusion of growth. Trump likely sees that as vulnerability and therefore, the time to strike.
Those tariffs will ricochet and shoot the U.S. ag economy right between the eyes. China, Mexico and Japan will make strategic deals with South America for food as we will have become an unreliable supplier.
China will invest in Brazilian transportation infrastructure and make deep inroads into our competitive advantage reducing the cost of transportation moving Brazilian pork, beef, soybeans and corn into the world market.
China has already made similar deals in the Ukraine essentially bartering infrastructure construction for commitments of corn.
Donald Trump will have made South American agriculture great and turned the U.S. ag sector into a loser. Anyone who thinks we can impose draconian tariffs on our top ag trade buyers – Mexico, Japan and China – and that the U.S. ag sector escapes unscathed is a fool.
A trade war with China will create new geopolitical tensions that our military will have to respond to in Asia. While Donald ridiculed the cost of the Iraq war, how much would a trade war with China cost us militarily?
By the time the public wakes up to the ramifications of a President Trump, Melania will be picking out the drapes for the West Wing of the White House, if she can stand to live in that dump. Donald will have a really cool new airplane.
Given the weighted prospects of a President Trump what can we do about it to protect ourselves in the ag sector? I will share some thoughts, while not all the answers, next week, in this series’ finale.
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.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page