Future Shock: Farmers Exposed by US-China Long Game
by Chris Bennett, AgWeb
Aug 06, 2019
As the United States and China play tennis in an economic minefield, American farmers are forced to watch from the stands, and no matter how the current tariff war ends, a roller coaster ride for U.S. agriculture may be only just beginning in the long game of U.S.-China economic competition.
At the 2018 G-7 Summit, President Trump cited the U.S. as “the piggy bank that everybody is robbing.” However, “everybody” doesn’t hold a candle to China on the international stage. In the vernacular: Brussels ain’t Beijing. China’s threat to the U.S. economy is without compare and its expansion as an economic and military juggernaut, led by Xi Jinping, essentially a dictator for life, means the rise of an adversarial power enjoying a near-$400 billion annual trade surplus at America’s expense. Adding to the alarm, China is catching wind and has concrete plans for ascendance—i.e., solo occupation of the global catbird seat by 2049.
The ultra-high stakes chess match between international heavyweights leaves U.S. farmers exposed. Xi’s calculated use of agriculture as a battering ram to strike at the U.S. heartland is the preeminent farming issue of the 2018-2019 tariff war, with soybeans and other ag commodities piled on center stage. Yet, even if the current tariff war is resolved favorably for U.S. farmers, the future of U.S. ag exports to China is a looming question, and even the most sanguine predictions must reckon with a rapidly changing dynamic.
Wink and Nod
In 2017, the U.S. bought nearly $566 billion more in imports than American businesses sold in exports. China was central to the massive gap, muscling its way to a $376 billion surplus, almost double its defense budget, according to Jane’s. In 2018, the U.S. imported $539.5 billion in goods from China, and exported $120.3 billion in goods to China—a difference of almost $420 billion (an all-time, single-year record). From 1992 to 2016, China was the fat cat of U.S. trade imbalance, racking up $4-plus trillion in surpluses with a wink and a nod, while the U.S. bled jobs and manufacturing power.
Mark Stys, a geoeconomics analyst and president of WS Wealth Management, says in the short-term, the U.S. has competitive advantage and leverage. “We have a $21 trillion economy and China has a $13 trillion economy. Based on the size of the economies and how important exports are to both countries, every $1 of loss to us is an $8 loss to them. China exported $540 billion to the U.S. last year and that means 4.2% of their economy is built on exports to the U.S.”
China is also affected by agricultural circumstances unrelated to tariff pain, Stys explains: “Right now, they are feeling things that have nothing to do with U.S. actions. They’ve got 13 regions with an armyworm infestation, and that hits corn and other crops. Swine fever has swept into 31 regions, killing millions of their hogs.”
The total extent of armyworm and swine fever is unknown, but the damage is significant, according to Stys. “China doesn’t get a ton of fuel from us, but it does get a heavy amount of food. The Chinese economy is 70-85% capable of feeding its own population. Many estimates say swine flu and armyworm could knock out 20% of China’s ag production. That takes you down into 50-65% internal production.”
Stys expects tariff resolution at least by the end of 2019, but acknowledges U.S. farmers are in a precarious position. “Certainly, China can replace ag product sourcing and farmers could feel the brunt. But it wouldn’t be a shock to see the Trump Administration hand in goals to balance long-term trade to get commitments to increase income for agriculture. If that happens, U.S. farmers could also be winners.”
Belling the Cat
Over the past 30 years, U.S. officials knew a day of reckoning would arrive regarding China, but the fear of trade disruption ensured the inaction of successive presidential administrations—no one wanted to bell the cat. Further, Xi and his predecessors benefitted from Western insistence that China was on a dual path toward wealth and a modicum of democracy. However, in 1991, when the Soviet Union imploded and finally splintered, China took copious survival notes on the USSR’s downfall—crucial lessons learned. Recognizing economic prosperity as the vehicle to remain in power and sustain communism, Chinese leaders pivoted and hopped on the free market bus, riding as far as necessary and getting off whenever convenient.
Meanwhile, the West bought the feint, praised China’s new road, and championed a world order where democracy was inevitable across Asia. According to the political script, China was shaking loose its totalitarian past and marching toward a model of freedom. Remarkably, the praise from Western leaders drowned out the echoes of the benchmark Tiananmen Square massacre...
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The U.S. cannot afford to ignore China’s aspiration’s regarding global supremacy, contends Dr. Jonathan Ward, founder of the Atlas Organization, a consultancy for business and government on U.S.-China competition. “What America needs to understand is that we are in a dedicated, long-term contest with a rising superpower that wants to replace us as the world’s dominant power...
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