When It Comes to Trade, Lucky It’s an Election Year
Posted on February 27, 2020
After the White House announced its twin trade triumphs, passage of NAFTA 2.0 and phase one of a multi-phase deal with China, readers emailed to suggest I should write a column on—to quote two—the “absolutely amazing trade deals” “only President Trump” could have done.
Before I pass judgment on so humble a request, it might be prudent to hear what other actual global trade professionals have said about both deals.
One of the most experienced pros is Robert Zoellick who, as U.S. Trade Representative (USTR) under President George W. Bush, helped create today’s giant Chinese market by prying the nation into the World Trade Organization. Later, he delivered several farmer-favoring trade deals with Central America and Southeast Asian countries.
Zoellick’s view of the China and NAFTA pacts is simple; he hates both. His reasons, outlined in a scorching, Jan. 22 Wall Street Journal op-ed, hinge on what the U.S gave away in the China deal and the added costs Americans will pay under the NAFTA update.
“Historians,” wrote the former USTR, “will puzzle over this turn of events: A Republican U.S. president endorses central planning for trade while a communist government in China cautions… that international commerce must reflect ‘market conditions.’”
Upside down as that is, Zoellick continued to note that the U.S.-China pact is made worse because it “…permits each side to use its own statistics, so China will likely ‘meet’ some quotas by reclassifying U.S. exports to Hong Kong…” while redirecting “commodity purchases—fuels, food chemicals… from U.S. producers to third countries.”
To ensure that even headline readers got his point, Zoellick titled his red-hot, NAFTA/China review “Trump’s Pyrrhic Trade Victories.”
Other ag trade and finance pros saw the market impacts in similar terms.
A week after the China deal was signed, a DTN column (excerpted by the University of Illinois’ farmpolicynews website) asked a China Agricultural University professor for his on-the-ground view. “It will take a long time for the two countries, as well as the world market, to reestablish a balance to facilitate the deal,” he said.
That’s a diplomatic way of saying, “Don’t hold your breath.”
A “purchasing manager” for a Chinese soybean crusher told the same DTN writer that he expected little market push. “We already booked our positions all the way to June 2020 from Brazil… Buying more old-crop beans from the U.S. will mean importing U.S. beans in the Brazilian market season. This will flood the China market.”
So far, U.S. futures prices prove both views correct. Nearly two weeks after the President signed the China deal, both old and new crop soybean futures prices were 40- to 50-cents per bushel lower. Pork futures, the other predicted beneficiary of the deal, were as flat as an Illinois interstate.
In fact, most soybean futures contracts stumbled to a 13-cents per bushel loss the day the President signed the China pact, Jan. 15.
Six days later, U.S. Secretary of Agriculture Sonny Perdue told the American Farm Bureau Federation convention that a third “tranche” of direct farm payments—this one an estimated $3 to $3.5 billion—will be sent to farmers as the final part of the White House’s 2019 tariff mitigation effort curiously named the Market Facilitation Program, or MFP.
In the same speech, however, Perdue warned farmers that neither he nor the President saw a need to continue MFP in 2020. The reason, he offered—by slyly turning the farmers’ own catchphrase on the farmers themselves—“… you want trade, not aid, and we’re going to get our trade.”
Well, “good luck on that” seems to be the clear consensus on both deals among trade negotiators, trade analysts, and actual commodity traders.
And my view?
It’s an election year; start pushing for another MFP. Fast.
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