Wednesday, July 24, 2019

Trump Could Lose His Trade Dispute With China But Win Reelection

Chinese purchases of U.S. soybeans could influence President Trump’s reelection prospects in 2020.

In 2016, Trump won the Midwestern agricultural states of Iowa, Nebraska, Indiana, Ohio, South Dakota, North Dakota, Missouri, Arkansas, and Kansas.  These 9 states are among the top 11 soybean producing states; the other two are Illinois and Minnesota, both heavily Democrat states.  Without the support of the agricultural Midwest, Trump could be a one-term president.

Since 2000, U.S. agricultural exports to China rose from $3.0 billion to peak at $29.4 billion in 2014, but stayed strong at $23.8 billion in 2017.  Indeed, China is the top market for U.S. agricultural exports (followed by Canada and Mexico).  Then the bottom fell out of China’s imports of U.S. farm products to $9.3 billion in 2018.  Soybeans make up 52% of U.S. agricultural exports to China.  In Trump’s words, “Not Good.”

What happened?  Following Trump’s first wave of tariffs on certain imports from China, China levied retaliatory tariffs on almost all U.S. agricultural and food exports; in particular, 25% tariffs on U.S. soybeans.  Prior to the tariffs, almost half of all soybeans produced in the U.S. was exported to China.  After the tariffs were imposed, U.S. soybean exports to China dropped precipitously.  U.S. producers were not able to replace lost sales to China with increases to other countries.  Prices fell and unsold soybeans piled up.  If producers of soybeans and other agricultural products blame Trump’s tariffs on Chinese goods for their problems, Trump could risk losing their votes in 2020 and perhaps some of the agricultural states he won in 2016.

It’s no accident that China imposed retaliatory tariff on agricultural products, especially soybeans.  China knows that Trump is vulnerable to reduced agricultural exports to China.  Trump tweets that he is waiting for China to fulfill its promise to buy more U.S. farm products, but the Chinese government has not yet rolled back its tariffs and Chinese importers have been slow to act.  As part of a trade deal, China will likely reduce its agricultural tariffs and Chinese importers will likely resume buying soybeans.

If a trade deal is signed, both parties will claim victory for themselves and global trade.  A trade deal that maximizes economic freedom for consumers and producers who rely on imports in the production of goods is a good thing.  Trump is unlikely to get a genuinely enforceable intellectual property rights agreement or an end to Chinese subsidies.  But if Chinese orders for U.S. agricultural products ramp up, Trump will claim both an economic and political victory.

Will a trade deal reduce Chinese exports to America?  Probably not.  Will a deal substantially increase U.S. exports to China?  Probably not.  Trump will have ranted and raved about China “ripping off the United States” with nothing concrete to show for it.  But if the Midwestern industrial and farm states vote for him in 2020, not much harm will have been done, and things will go back to “normal.”

1 comment :

PhilNag said...

Agricultural goods are fungible and a single market. When China, which must import agricultural goods, imports agricultural goods, it does not make any difference who China imports its agricultural goods from. On the other hand, industrial goods are different. US importers will look for alternative sources and those sources will probably require long term contracts to justify additional investments. Domestic sources, who may also demand long term contracts, will also become more competitive. Once Chinese manufacturers are abandoned they will have a difficult time getting customers back. That fact has already been reflected in their stock market.