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China has surprisingly little leverage with ag tariff threat

May 07, 2018

President Donald Trump’s recently implemented trade strategy — including tariffs on subsidized imports from China — is drawing fire from multinational agribusinesses and their trade associations. They favor a borderless world, and they support the free trade agreements of the past 20 years.

Op-ed Originally Appeared on LifeZette on May 5, 2018

Family farmers and ranchers, however, have a different view. They no longer believe current free trade agreements will benefit them. Net farm income this year is projected to be the lowest since 2006. The North American Free Trade Agreement (NAFTA) transformed America’s agricultural trade surplus with Mexico and Canada into a deficit.

American crop exports are declining as a share of world markets due to subsidized overproduction from other countries.

And U.S. livestock producers are now losing market share in their own home market.

America’s farmers and ranchers should seek inclusion in Trump’s trade strategy, since they confront trade challenges surprisingly similar to those faced by domestic manufacturers.

For example, Trump is using tariffs to target dumping of steel and aluminum in the U.S. market, which threatens national security. A key problem is government-owned Chinese companies' overproduction of steel, which has led to global overcapacity. Surging imports have caused U.S. steel production to fall 20 percent over the past decade, with 50,000 steel jobs lost since 2000.

America's cattle and soybean producers face a similar challenge due to Brazil's overproduction of cattle and soybeans, which are subsidized through government programs and directives. The profitability of U.S. cattle and soybean production — and the number of viable farms and ranches — continues to decline in the U.S. as a result.

The Trump administration is also targeting Beijing with the planned imposition of $150 billion in tariffs to combat China's forced technology transfer and the theft of high-tech intellectual property. Instead of changing their behavior, Beijing has announced the intent to impose retaliatory tariffs against some U.S. agricultural products.

While media reports cause many to believe U.S. producers would be drastically harmed, a deeper analysis reveals that China holds surprisingly little leverage in most agricultural markets to intimidate America's agricultural producers.

The risk of retaliation in the soybean market has been a news focus. It is true that the U.S. exports more soybeans to China than to any other country. But China's soybean tariff threats have not driven prices down. Instead, prices are now higher than before the March tariff threats.

And new markets have been opened for American soybeans, as evidenced by sales of hundreds of thousands of metric tons in April to Argentina and the European Union. The U.S. had not previously sold soybeans to the European Union in 15 years.

The corn market has been similarly unaffected. Corn prices are higher than last year's, and U.S. producers are not dependent on China's purchases. The U.S. sells very little wheat and beef to China, so even less impact is expected in those markets. Pork and sorghum, however, could be impacted, and the administration should make sure that family farm producers are cushioned from any blows that arise from a broader trade effort.

The president has rightfully directed Secretary of Agriculture Sonny Perdue to develop a plan to protect U.S. farmers. And Sen. Chuck Grassley (R-Iowa) has suggested that the Agriculture Department's Commodity Credit Corporation could play a role, too.

It's notable that Brazil and China are becoming larger threats to U.S. farmers and ranchers. The Brazilian companies JBS SA and Marfrig have purchased dominant pork and beef packers here. A Chinese company bought the largest U.S. pork producer and packer, Smithfield Foods.

Essentially, Brazilian overproduction of soybeans and other agricultural products poses a threat to U.S. agriculture, similarly to the challenges China's industrial overcapacity poses for America's steel producers.

Farmers and ranchers will benefit if the administration expands its trade strategy to deal with foreign subsidies and overcapacity, along with weaponized incoming investment in the nation's agricultural sector.

If Beijing continues this trade conflict by failing to fix its predatory economic strategy, it faces a bigger problem. China has built its economic success on continually selling to the U.S. market — and its manufacturers desperately need access to U.S. consumers.

Tariffs would decrease American purchases of Chinese goods, spurring job growth in domestic manufacturing, which will fill the gap. Any subsequent gain in middle-class manufacturing jobs would mean more purchasing power for U.S. farm products.

Overall, farmers should stand firm with the president as he tackles these longstanding problems, and demand that they be included in any strategies to address predatory foreign practices. Past administrations helped cause this problem.

The time to act is now in order to preserve a strong economy in 20 years.

Michael Stumo is CEO of the Coalition for a Prosperous America (CPA).


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