By MICHELE F. MIHALJEVICH
WASHINGTON, D.C. — A recent meeting between the presidents of the United States and China may have helped alleviate immediate concerns of a trade war between the two nations, a market analyst said.
After meeting with Chinese President Xi Jinping earlier this month, President Donald Trump said he would not declare China a currency manipulator – a change from his stance during last year’s campaign.
Darin Newsom, DTN senior analyst, said his worries about a trade war have lessened but haven’t gone away. “In November through January-February, I was concerned because of all the tough talk,” he explained. “It seemed like (Trump and administration) didn’t know what was going on and how the world worked. Since then, they’ve pulled back the tension a bit.
“There are too many people who understand what the ripple effect might be. I’m concerned, but not as concerned.” U.S. commodity prices could be affected if a trade war were to occur, said Jon Marcus, principal at Lakefront Futures & Options LLC. “The situation is twofold, in my opinion,” he noted. “Exports out of the United States wouldn’t go to China, so where do they go? That could impact our prices negatively. For China, it will eventually come back around to price, and that trumps any kind of anger. They need to feed their people.
“The flip side is that exports might be stagnant for six months to a year. But eventually, you go where the prices are the cheapest. The first factor is, China isn’t going to let their people go hungry and second is, how much is it going to cost?
“In the end, U.S. agriculture wins every time. In the long run, this is where the world goes to feed itself,” he said. A trade war would be a disaster for U.S. agriculture and the industry in general, Newsom said. “We ship a lot of soybeans to China,” he said. “For six months, they buy soybeans from the U.S. and for six months, they get them from South America.
“Given the enormous South American soybean crop, buying from them could offset some purchases they’ve made from the U.S. and the U.S. could lose some ground.” China is also a major purchaser of U.S. pork and other commodities, Newsom said. The country’s demand is too great for it to get all its commodities from other countries and not from the United States. “It seems logical they wouldn’t let their population starve. A starving population is not a happy population.”
A trade war could lead to the United States approving taxes or tariffs on Chinese goods, Marcus said.
“If we were to impose some sort of tariffs or taxes, it would be flexing our strength,” he explained. “Any funds that would come in, any revenue generated, would be secondary. It would be to say, ‘If you’re dealing with us, you’re dealing with the best. We won’t be pushed around.’”
The White House has mentioned 11 possible trade measures against China, according to list published in a March report from the Rabobank RaboResearch Food & Agribusiness group. Included as options are a 20 percent border tax, a 45 percent tariff on some or all Chinese goods, a boycott of Chinese products and a curtailing of Chinese investment in the United States.
“The possible outcome of all this political rhetoric could well be that the two countries eventually agree to negotiate a package of measures to avoid a full-blown trade war,” the report stated. “But it will also depend on a game of chicken, in which a lot of hostilities and protectionist sentiment have recently bubbled up to the surface. “Chinese-U.S. tensions are a reflection of deeper rising anti-global sentiment.”
Trump and Xi also discussed China’s ban on U.S. beef, according to media reports. In September, China said itwas lifting the ban but technical terms are still being negotiated. The ban was imposed in 2003 after a case of bovine spongiform encephalopathy was found in the U.S.
“If this is true, it’s a step in the right direction,” Newsom noted. “But right now, though, just as it was last November, it’s just all talk.”
Over the next 100 days, U.S. and Chinese leaders will work to address some of the issues still remaining, such as traceability, said Kent Bacus, directorof international trade for the National Cattlemen’s Beef Assoc.
“Even though there has been a nominal lifting of the ban by China, we’re still unable to send beef into the Chinese market because we still face technical barriers to trade,” he said. “So we still have a little bit of time before we’re going to see beef enter the Chinese market. “We produce a very safe, high-quality product and we think we’ll have a very bright future in China as soon as we get our foot in the door.”
Newsom is also concerned about how the agriculture industry might be impacted by changes to the North American Free Trade Agreement, as Mexico is a top buyer of U.S. corn. “The stuff going on with Syria and North Korea has turned attention away from Trump’s plan to build a wall and break up NAFTA,” he explained.
“Mexico is making overtures to possibly buy corn from South America if they can work out the logistics. It wouldn’t eliminate the need for shipments from the U.S., but could reduce our shipments. That’s why all their threats are so dangerous.”