With trade between vital North American partners already in flux, the United States now stands at the precipice of what could develop into a full-scale trade war with China, with further implications to follow.
Four months ago, 11 countries signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. The agreement intends to reduce non-tariff and tariff barriers to trade, establish an investor-state dispute settlement mechanism and set rules on intellectual property, labor and the environment. The so-called TPP-11 was the result of the United States’ withdrawal from the 2016 original version of the agreement, and it has yet to be ratified. The United States did not take part, but President Donald Trump in March directed his economic adviser and the U.S. Trade Representative to negotiate a U.S. entry into the refreshed partnership, which would spell relief for some farmers.
“Putting it simply, joining TPP is the best way to avoid a potentially devastating loss of wheat sales to Japan,” said Michael Miller, chairman of U.S. Wheat Associates and a farmer from Ritzville, Washington, U.S.
“If the United States joins TPP, U.S. wheat should be able to compete on a level playing field with Canadian and Australian wheat, which will soon have a major advantage once TPP is implemented,” he said. “That would keep U.S. wheat sales that currently represent 50% of Japan’s total wheat imports competitive in this crucial market.”
Farms could see income drop dramatically from trade standoffs. In Ohio, for example, the top four destination countries that receive the state’s $3.9 billion in annual agricultural commodity exports include Canada (38% of Ohio exports), the European Union (15%), Mexico (13%) and China (8%). Americans for Farmers & Families said retaliatory tariffs could cost Ohio $241 million and could lower the average Ohio producers’ net farm income by 59%.
Later in March, the White House revealed plans to initiate tariffs on imports of steel (25%) and on aluminum (10%). These tariff proposals contained a national security component and indicated other industries deemed vital to U.S. national security could see protection down the road. By the end of the month, Brazil (source of 13% of U.S. steel imports), South Korea (10%), Australia and Argentina were granted exemptions.
Stocks initially tumbled, and protests were swift from a broad range of American industries. China immediately threatened curbed import of U.S. soybeans. Canada, the source of 16.1% of U.S. steel imports, said the tariffs would be “unacceptable” and planned retaliatory tariffs on $16.6 billion in U.S. goods. The European Union announced a 25% tax on imports of U.S. corn. The European Commission president said the charges would be subject to a World Trade Organization legal challenge. Last month, motorcycle stalwart Harley-Davidson said some manufacturing would move overseas to avoid retaliatory tariffs.
Hardball with China
A few weeks later, President Trump, as part of his push for China to reduce by $200 billion the $375 billion U.S. merchandise trade deficit, proposed 1,333 separate tariff lines on about $50 billion worth of Chinese products, an amount proportionate with the economic harm to the U.S. economy by China’s “unreasonable technology transfer policies,” the USTR said, referring to an investigation that found China had coerced U.S. companies into transferring technology and intellectual property to domestic Chinese enterprises.
A revised list released June 15 by the USTR split the products into two lines: The first levies an additional duty of 25% on 818 product lines covering about $34 billion worth of imports from China. Those tariffs are set to begin July 6.
Among the hundreds of products: elevators and conveyors; machinery for lifting, handling, loading, unloading, haymaking, harvesting and threshing; poultry incubators and brooders; machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables; machinery used in the milling industry or for the working of cereals; and many other machines and parts used in the manufacture and packaging of ingredients and food products.
The second set of 284 proposed tariff lines covers about $16 billion worth of imports from China (including agricultural or horticultural projecting or dispersing equipment, seeders, planters, transplanters and fertilizer distributors), and will undergo further review.
Almost immediately, Beijing issued its own list comprising 106 products totaling $50 billion in U.S. goods that will be subject to increased tariffs of around 25% should the U.S. government follow through on its proposed new tariffs.
The principal U.S. agricultural export targeted by China was soybeans. U.S. soybean exports have a lot to lose in the event of a trade war. China accounted for 61% of soybean exports valued at more than $27 billion in 2017.
Trade groups representing producers and their families have decried the potential effects of retaliatory tariffs.
“As a soy grower, I depend on trade with China,” said Davie Stephens, vice-president of the American Soybean Association and a soybean producer from Wingo, Kentucky, U.S. “China imports roughly 60% of total U.S. soybean exports, representing nearly one in three rows of harvested soybeans.”
From the administration’s perspective, changes in China’s behavior will “fully open up its markets to U.S. products,” Secretary of Agriculture Sonny Perdue wrote in a June 25 editorial. He related the story of Chinese nationals, intent on reverse engineering, digging up genetically-engineered seeds from an Iowa corn field as one of “countless pieces of evidence in the case against China for intellectual property theft and unfair trade practices.”
Perdue defended President Trump’s understanding “that our farmers feed, fuel and clothe this nation and the world.”
“There is legitimate anxiety when you see prices depressing,” Perdue said on June 28. “But farmers are resilient, they understand China has not been paying fair. The president has told me to tell (farmers) he’s not going to allow them to bear the brunt of these trade disruptions and to make a plan for mitigation unless we are able resolve the trade issue. That’s obviously what farmers would prefer. They would like to have trade. They want to sell their products, they’re the most productive in the world. They’ve come to depend on exports, and that’s their first choice. But if they don’t, they have to pay their bills like everyone else.”