How one interprets the impact of the trade war with China depends on who your constituents are. Iowa Senator Chuck Grassley, whose constituents are Iowa farmers, calls the tit for tat tariff exchange and resulting massive losses in soybean and hog prices a “catastrophe”. These farmers used to be former Iowa Governor Terry Branstad’s constituents but as Ambassador to China he really now only has one constituent…Trump. Branstad praised Trump’s strong stand on tariffs suggesting that Iowa farmers are “taking one for the team” as all support leveling the playing field with China on trade.
In most conflicts or disagreements, war is the last option taken, but Trump tried no other, opting to throw the ag sector under the bus as acceptable collateral damage in his global trade offensive with U.S. trading partners.
The only player here more screwed than us is China. They have no means to win a trade war with the U.S. They cannot counter Trump’s $500 billion in threatened tariffs. Peter Zeihan points out that “Americans control the trade routes, global energy, global security and global finance. . . everything that makes the Chinese system possible. The Chinese simply can’t bring the fight to other fields without suffering immeasurably.” As I have noted, Trump’s oil embargo on Iran is another shot that will go right through them and hit China.
I think that Donald Trump can win this trade war. I think that the U.S. is powerful enough to exert its influence on the levers of power that determine what goes around with world trade. I am unconvinced however, that the U.S. Ag sector will share in this “victory”. I think the ag sector dominance in world trade will be sacrificed for Trump’s perception of the greater good.
Countries will no longer allow themselves to rely on the U.S. for food. It will be a less efficient global food system but it is what you get when no one trusts each other any longer. He loves farmers when they vote for him and tells them things that are not true. He did this with the ethanol industry. On Thursday, April 12th, in a declaration from the oval office, Trump said that the administration would approve year-a-round sales of E-15…a major policy shift for the federal government.
“We are going to take it up to 15 percent…makes a lot of people happy…we are going to go to 12 months…we’ll go from 8 to 12 months”. Trump was thanked by representatives of the ethanol industry for the change that would benefit ethanol consumption. The summer fuel regulations that required the waiver for summer E-15 sales started June 1st. It is now July 26th and no waiver has been issued. Grassley will blame Scott Pruitt so as not to ingratiate himself with the President but the President himself made the promise which was not kept. Maybe next summer huh?
Given the billions in losses and subsequent disastrous impact that the tariffs will have on net farm income, Trump has promised to have farmer’s backs. Ag secretary Sonny Perdue has spent most of his time traveling the country spreading the president’s assurance that he will support farmers impacted by his trade war. They have been very careful however, to make no specific promises about how that will be done. Some expect that it will be like Trump’s promise for the E-15 waiver…that it is empty or will come too late to help with the financial fallout. Congress is dysfunctional so we could not expect to get much through them. The farm bill safety net is set too close to the ground to offer much safety. Crop Revenue Insurance deteriorates with the prices so there is no longer term help.
Trump promises that his trade war will pay off for farmers in the long run. I have been in this business for a long time and have seen how trade works, how relationships are built and sustained and I do not believe that. I do not believe that this trade war will pay off for farmers over the long run. I believe that they will instead embellish small victories that will not cover the scope of the destruction to global supply chains that were once grounded in the U.S. ag sector that will be blown up in the war. I am not convinced that Trump will gain concessions on GMOs and other Phyto trade barriers that have restrained growth of ag exports. I hope that he can, but I think that farmers have been thrown under the bus, run over and should be prepared to have the bus back up over them again.
I think that Donald Trump’s trade policy will make South American agriculture really great, Russian agriculture Great… Ukrainian, Canadian, Mexican, New Zealand, Australian and even China’s agriculture Great at our expense. I will be pleasantly surprised if we even get reimbursed for a portion of our immediate losses and I have no confidence whatsoever that our long-term trade prospects will be fully repairable given the catastrophic damage that will be done. Without access to foreign markets farmland values and cash rents are too high. Bankers will bring some farmers suffering from ideological delusions to their senses.
China is already reimbursing their ag sector for losses sustained. They did not have to wait until Labor Day to find out what their government would do for them. Chinese end-users are being reimbursed for the cost of the soybean tariffs. Beijing has boosted farm subsidies for Chinese farmers to encourage expanded production. Beijing is also implementing strong measures to reduce their soybean imports and dependence on imports in general, specifically at our expense. Every other ag industry in the world will find better terms in China than ours. They are supporting their ag sector with more than just promises.
The trade war with China over intellectual rights is going to take a long time to resolve. Perdue and Branstad are tasked with putting out fires the trade policy creates in Trump country. Trump told farmers what he was going to do with China and they voted for him anyway. That gives Trump the impression that he has their blessing to use them in this manner.
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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