John Phipps: "Winning" the Trade War Won’t be Quick or Easy

121518-JohnsWorld
John Phipps explores the economic indicators which show an end to this trade war may not happen quickly. ( MGN )

It been a while since my Tariff 101 series and the debate is dominating both ag and general news coverage, so I think this might be a good time to look at what we have learned from trade data gathered from tariff actions.

First, it is really starting to sink in how important exports of commodities are to US agriculture. Starting with walnuts, where 80 percent are sold to foreign buyers, you can see from this chart how dependent American producers are on vigorous trade. Simply put, our constant cheer of “feed the world” was sincere but also could have been “sell our overproduction”.

Farmers here began encouraging foreign buyers when global economic growth meant formerly poor countries had reached a point where their consumers could afford more and better food. In other words, our export plans have been based on continuing global economic growth.

Where will economic growth come from in? This chart can help add perspective to answer that question. Clearly, it is impossible to overstate how important growth in China is to global economic progress. Over a third of global expansion will occur in China. Since we already are supplying the US market, subtracting our growth out, along with advanced economies relatively self-sufficient in commodities, China becomes even more crucial to our export projections.

As the trade war gathers steam, how do we can tell who, if anyone, is winning? One objective appears to be hurting the Chinese economy more than they hurt ours. While we have been focusing on US pain – like soy exports – the goal of dragging the Chinese economy down to extract concessions may work, but it could be a costly victory. The bathtub theory of soybeans is not looking too accurate, for example – other countries have increased buying but have not made up the loss. This US strategy may not have as much leverage as we imagine. China has been shifting from trade to internal consumption the driver for their economic growth. The U.S. accounts for 18% of their trade, but trade is increasingly less important to the Chinese economy.

I’ll keep checking in on economic indicators as this battle unfolds. Many of the consequences of trade wars take months and even years to manifest. But there is currently no indication winning this trade war will be quick or easy.

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John Phipps' Tariffs 101
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