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DAVID KRUSE

By Staff | Dec 2, 2016

U.S. citizens, businesses and the entire global community is now in anticipation with bated breath to see how much of the world-view that President-elect Trump touted during his campaign that he is actually going to pursue.

He assured his supporters time and time again that “he would not let them down” but in the few days since the election, all that you read and hear is that he will soften this or moderate that. None of this idle speculation is coming from the President-elect so should be taken with a grain of salt.

Expectations of turmoil and tumult that would result from his espoused trade and immigration policies are the father to those thoughts and fears. A lot of the trade and global community are in a state of denial. Donald Trump has never avoided direct confrontation in his life so I wonder why people think that he will now?

The world is changing, shifting, moving toward a reversal of globalism seen since WWII to nationalist mindsets as global economic growth has disappointed the middle class in the U.S. and Europe where voters are now disgruntled with the status quo.

Political movements in Europe and the U.S. are rejecting establishment political leaders opting for change. It appears that we are on the cusp of the largest economic trend change from trade liberalization toward global protectionism seen since the 1930s. It is a gut decision rather than thoughtful introspection into the ramifications of the change that will result, having a varied impact depending on whom and where interests lie.

I believe that for the ag sector we are about to be on the receiving end of negative material adjustments that may transcend the change that occurred when Reagan replaced Carter in 1980. Those who came to be called “Reagan Democrats” put him in office and those same Rust Belt voters elected Donald Trump.

Reagan’s economic policy did help the consuming economy, but it knocked the heck out of ours in the producing economy of the ag sector. Donald promised protectionism to protect Rust Belt manufacturing jobs. He made no mention of the negative impact that his trade and immigration policies would have on ours in the producing economy.

History doesn’t repeat itself, but it rhymes a lot. Much of what Donald has threatened, by placing tariffs on imports from Mexico, China, Japan or others, would be illegal under WTO rules so he has threatened to upend the current global trade rules and institutions. There would be certain retaliation.

Some of what he has threatened is the part of the art of the deal, but in order to get opponents to believe your bluffs, a strong precedent that threats will be followed through on, must be set. Trump will hit somebody so hard their teeth will rattle in both the trade and military arenas in order to set precedents.

I was amused as our intelligence community is purportedly expecting foreign entities to test Donald early in his term in office. Those darn fools are looking at it all wrong. Donald is going to test the foreign entities. It is they that should be nervous. New alliances will be formed on trade and security.

Donald loves the Brexitors and they purported to love him. I don’t think that the romance will last. The U.S. will have to ink a new trade agreement with the UK when they leave the EU. It will be interesting to see how two renegades from the previous world trading order can shape a bilateral trade agreement that meets each other’s protectionist objectives.

That would seem to be an oxymoron-like trade agreement. U.S. trade partners are not stupid. While most of them will hope for the best they will prepare for the worst.

U.S. economic growth acceleration in a slowing global economy will push the dollar higher – potentially much higher. The solid close in the dollar index above par opens the door technically for a run at the 121 2001 high on the dollar index.

The reversal of globalization is going to increase the angst and disagreement resulting in trade disputes and skirmishes. This will truly be big league. The high in the dollar index since 1967 was struck near 164 in 1985 corresponding with the low in the ag depression of the 1980s. Dollar strength was a component of the devastated U.S. ag economy.

There is no scenario in which the U.S. dollar can climb to 120 or 160 without a serious impact on the ag sector from loss of export competitiveness. The first response to expectations for a stronger dollar has been for Mexico and China to buy more corn and soybeans as they build inventories to use as a buffer should trade be disrupted.

I would look at this as similar to the light bulb getting brighter before it goes out. Donald’s hand is on the light switch.

This is a very important crop in South America with the whole world grain/soy trading community focused on when the crop can be considered made so that there is another source of corn/soy supply other than the U.S. Companies around the world will be developing strategies that gain them some independence from the US as a supply source of critical commodities.

Confidence in the U.S. as a reliable supplier, something that it has taken decades since Jimmy Carter’s Russian grain embargo to repair, is now being put into question again by the extreme protectionist rhetoric heard from both U.S. political parties during the election.

TPP is dead and that may be the least of our problems. Any U.S. business that relies heavily on exports for its revenue is now under great uncertain risk.

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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