Trade talks have big impact here

“The Chinese can agree on just about anything, but the question is; will they actually follow through?” – Former Secretary of Agriculture, Tom Vilsack, currently President and CEO of the U.S. Dairy Export Council, regarding ongoing trade negotiations with the Chinese government.

Part of my weekend consists of watching newsworthy programs on television or on the Internet. Former Secretary of Agriculture, Vilsack, along with Kirk Leeds, CEO of the Iowa Soybean Association, were guests on Friday’s edition of the Market to Market show hosted by Delaney Howell. In short, after watching, at best, they expressed guarded optimism that any workable framework may be forthcoming, though both believe further substantive discussions will not conclude without further talks after the current administration’s self-imposed, March 1 deadline. Rather, there may be an initial “face saving” agreement, giving both parties more breathing room.

That said, we must be mindful of the tremendous impact an unsuccessful conclusion of trade negotiations can have on the finances of agriculture and other industries.

Consider these numbers; currently, based on data compiled by the American Farm Bureau Federation, seven states lead the nation in total farm bankruptcies, indicating troubling times are not only predicted in the future, it already has come. Wisconsin and Kansas are ranked #1 and #2 respectively.

In that respect, In a rare show of bipartisan concern for the future of the agricultural economy, Vilsack and Leeds share genuine concern that permanent damage to American trade relations, not only with China, but also with other major trading partners has already been done. Both concur, following any satisfactory resolution of ongoing trade negotiations, recovery will take anywhere from eight to ten years, just to regain lost market share.

Both refer to the USDA’s own released data showing full recovery, just in soybeans, may not occur until after 2026, going into the 2027 marketing year. In essence, the negative impact on agricultural exports will continue to mount each year, to the tune of multiple billions of dollars into the future.

Added to this, the wheat industry also has released data which suggests the newly implemented, eleven nation agreement, the CPTPP, will cost U.S. wheat farmers an estimated $500 million per year, with total losses amounting to more than $3 billion within 9 years.

A successful conclusion to a trade agreement may eventually occur, but implementation, start-up and delivery according to contract terms takes time to fulfill, perhaps months or even a year.

But wait, we are getting ahead of ourselves; no agreement has even been concluded yet. Which bring us to the real issue behind the trade war in the first place: It is all about trade imbalances, abuses, etc., not in the agricultural arena, but in IP technology, technology transfers, services, steel, aluminum, etc…

Leeds and Vilsack are in agreement there are a lot of structural issues at play here and needs to be addressed, in terms how China treats US business interests in China, unfairly and in a discriminatory way. The administration is calling them out on this and it will be difficult for China to acknowledge they will have to change their way of doing business. In discussions, they are negotiating about mechanisms regarding penalties for violations, currency exchanges, subsidies China pays to its own companies, and the way US companies can do business in China, which Vilsack and Leeds agree China will struggle with accepting those terms.

Finally, Mr. Leeds explains a bit of Chinese culture for context. In the Far East, they talk about saving face, he says. “Is this agreement going to give China and the U.S. something to claim its victory? Certainly a lot of people hopes or thinks you can buy more products, (and) that solves the problem. But again, that’s not the fundamental issue we went into this. Some of us have been skeptical that, at the end of the day, this has been more window dressing than it was truly going after these core issues.”

I wholeheartedly agree. I, too, am very skeptical. Which brings us back to the real purpose of this poorly planned and unwise trade war. At the very least, if one were convinced a trade war was justified, Vilsack asks a rhetorical question; when has the United States (recently) gone to war without an ally? He suggests forming an allied coalition of nations who were unfairly treated by China, to go in as a global community and then say, “You gotta change the way you do business.” He further says, “going it alone has put a significant target on the back of American farmers and ranchers, and the Chinese understood that, they understood the politics of it, and they took full advantage of it.” Adding, “it is tremendously prejudicial to the American soybean growers, because once that market is lost, it is really, really difficult to get it back.”

Again, I agree, 100 percent. One reason why we did not consider presenting a globally united front against the Chinese; we unilaterally alienated nearly every major trading partner we had, by declaring a trade war against them.

Sadly, we have many “fences” in need of mending with our neighbors along our borders, and friends across the big pond.