Are we headed for a trade war with China?
If you followed Donald Trump’s presidential campaign, you know that he talked tough on trade – especially when it came to countries he believed were giving the U.S. a raw deal. He pledged to either kill or renegotiate existing trade deals like the North American Free Trade Agreement.
He saved some of his harshest words for China. At one point during the campaign, candidate Trump declared that “we already have a trade war” with China and vowed to slap tariffs on Chinese products and label the Asian giant as a currency manipulator.
It was his blunt, populist appeal that attracted many “Rust Belt” and rural voters and helped propel him to the presidency.
So, it really comes as no surprise that, a little over one year after his election, he announced that about $3 billion in steel and aluminum tariffs would be put in place to protect national security. Although several countries would be impacted, the target was clearly China – the largest global producer of steel and aluminum. Shortly after that announcement, China returned fire by imposing similar measures on $3 billion worth of U.S. pork, fruit, wine, nuts and other items.
In the latest salvo of trade actions between the U.S. and Chinese governments, the Chinese Ministry of Commerce (MOC) announced plans to impose a 25 percent tariff on $50 billion of U.S. goods, including soybeans, aircraft and automobiles. The Commerce Ministry said the tariff would be imposed on 106 items of products under 14 categories – but the date of implementation will depend on when the U.S. government imposes tariffs on Chinese products.
And last week, the U.S. Trade Representative published a list of 1,300 Chinese exports, worth about $50 billion, that could be hit with a 25 percent tariff to punish the Asian giant for stealing U.S. trade secrets, intellectual property and innovation. Shortly afterwards, President Donald Trump threatened another $100 billion in tariffs to retaliate against the retaliation.
But it’s still not a trade war yet and there’s time to disarm and step back, say U.S. and Chinese officials.
“No, it is not (a trade war) and our objective is still not to be in a trade war with them, but let me be perfectly clear, President Trump has been from day one very clear on we are going to defend free and fair trade,” said U.S. Treasury Secretary Steve Mnuchin Friday on CNBC. “We’ve been working with them over the last year and on the one hand, we’re willing to continue negotiations. On the other hand, the president is absolutely prepared to defend our interests.”
Nonetheless, all the saber rattling is generating market uncertainty and growing concerns that farmers will bear the brunt of what could become a long-drawn out trade war.
Everything from pork to apples could take a hit, but soybean farmers are one of the most vulnerable to Chinese retaliation because they depend on that market to buy about $14 billion worth of the crop every year. Purdue University researchers, at the behest of the U.S. Soybean Export Council, took a look at some possible outcomes if China retaliated against new U.S. tariffs by hitting its soybean exports.
Under the best-case scenario – a 10 percent tariff – U.S. exports to China would fall by a third, causing overall U.S. soybean production to drop by 8 percent. In the event of a 30 percent tariff, the researchers say U.S. exports to China would fall by 71 percent and total U.S. soybean production would decline by 17 percent.
“It’s not nice when they hit the farmers specifically because they think that hits me,” Trump said Monday about the various Chinese tariffs aimed at U.S. pork, soybeans, corn, sorghum, cotton, beef, oranges, plums and a long list of agricultural commodities. “Our farmers are great patriots. They understand that they’re doing this for the country and we’ll make it up to them.”
Secretary Purdue has been trying to calm jittery nerves in farm country, telling folks that the president has instructed him to come up with plans to protect farmers, including using various USDA options to compensate farmers for any potential losses.
“He’s authorized and commanded us to take care of our producers,” Perdue emphasized.
Perdue has not yet provided any details, but sources tell Agri-Pulse that the question of how to pay for the aid has been answered: Let China pay for it.
A relatively obscure law known as section 32 allows the USDA take money from customs duties and use it for a wide variety of things like disaster payments and purchasing surplus commodities and donating them to schools or other institutions.
Now that the Trump administration is levying new tariffs on steel and aluminum and planning to impose up to $150 billion more on China as punishment for intellectual property theft, those government coffers could swell.
For years, there had been a restriction on USDA from using section 32 funds for emergency aid as well as a hard cap on how much of those funds can be used. That ended when Congress passed the omnibus spending bill for fiscal 2018. The restrictions were removed on section 32, so long as USDA Secretary “provides written notification of the expenditures to the Committees on Appropriations of both Houses of Congress at least two weeks in advance.”
That’s not the only source of funds the USDA can draw on. It can also go to the Commodity Credit Corporation, an institution used by the department to borrow money from the Treasury Department, allowing USDA to “support the prices of agricultural commodities (other than tobacco) through loans, purchases, payments, and other operations.”
But consider the change in dynamics if this would happen: U.S. farmers and ranchers who moved sharply away from government intervention in their farming and selling decisions in the 1990’s could once again be heavily reliant on some type of government payment to stay afloat.
Of course, many farmers and ranchers hope that cooler heads will prevail and that this global “war of words” will result in more robust trade negotiations and ultimately, better trading opportunities. But in the meantime, there is plenty of anxiety to go around.
Although it’s not a trade war yet, Trump’s tariffs are a real and dangerous threat to the ag sector, says North Dakota Sen. Heidi Heitkamp.
“China must be held accountable for its record of trade abuses and intellectual property theft, but the administration’s drastic trade policies would instead come back to hit American farmers and ranchers where it hurts,” she said. “Tariffs on critical exports like soybeans would cripple North Dakota’s ability to sell our products, and we’d most likely face an impending farm crisis.”
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