An Urban's Rural View

Farmers Will Continue to Need Divine Intervention

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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In stage plays in ancient Greece, characters who played gods were lifted on to the stage by a crane or other machine, usually at a critical moment in the drama, allowing divine intervention to miraculously pull the good guys' fat from the fire. The Romans called this a "deus ex machina" -- literally a "god from a machine" -- and that Latin phrase is still used these days to mean interventions from out of nowhere that unexpectedly solve difficult problems.

Farmers and ranchers may have just benefited from a deus ex machina with a Chinese twist -- Zhongxing Telecommunications Equipment, or ZTE. The Trump administration had sanctioned the Chinese firm for defying U.S. embargoes on sales to Iran and North Korea. Now, in a stunning turnaround, it's reportedly negotiating to end the sanctions in return for China lifting big retaliatory tariffs on $3 billion of U.S. ag exports.

ZTE makes cellphones and cellular equipment that contain American-made semiconductors and software. The administration ordered U.S. companies to stop selling ZTE those components, and as a result ZTE had to halt production, putting the jobs of 75,000 Chinese at risk. When Chinese President Xi Jinping took umbrage, his friend President Donald Trump did an about-face, much to the dismay of those in his administration who've been urging a tougher stance toward China.

The Wall Street Journal reported on May 14 that the U.S. and China are "closing in on a deal," so the deus ex machina may well materialize (…). Even if it does, though, chances are good farmers and ranchers have not heard the last of China trade troubles with the potential to damage ag exports.

Why? Because unlike the Trans-Pacific Partnership, from which Trump withdrew, or NAFTA, from which he keeps threatening to withdraw, China is a real problem. Even those in Washington who consider the president slightly unhinged over TPP and NAFTA agree that China threatens the U.S. economy. They may think Trump is dealing with the threat in the wrong way, but they agree something must be done.

Take, for example, New York Times columnist Thomas Friedman, a globalist whose books have titles like "The World Is Flat." Friedman says he's still a free trader and doesn't fear China's plan to dominate high technology by 2025. But he thinks China isn't playing by the rules and he applauds the president for picking "a fight that's worth having. Don't let the fact that Trump is leading the charge distract from the vital importance of the U.S., Europe and China all agreeing on the same rules for 2025 -- before it really is too late" (…).

Others who disdain Trump's tactics see China's techno-nationalism as the bigger problem. In March C. Fred Bergsten of the Peterson Institute for International Economics headlined a blog post "How Not to Mobilize Against China." But even as he decried Trump's approach, he blasted China's "huge theft of intellectual property, aggressive use of mercantilist industrial policy, mandated technology transfers for foreign investors, repeated cyberattacks, blatant bullying of foreign companies and some foreign governments, and massive currency manipulation in earlier years."

The Washington-based China-hand diplomats I talk to are also openly critical of China. They are chagrined to admit that diplomacy has failed. They're divided over what would work better. But they're convinced we need to try something new.

For farmers and ranchers, China is mainly a big export market -- the second biggest after Canada in 2017, at $19.6 billion (…). As producers ponder developments, they've divided -- forgive this oversimplification -- into two camps. One fears China's retaliation against American agriculture exports. The other dismisses the threats on both sides as negotiating tactics and assumes something will be worked out that keeps China buying what U.S. farmers produce.

It's tempting to sign on with the second camp, considering the president's negotiating style. Trump often opens talks making big demands and issuing big threats before eventually settling for less, sometimes a lot less, and claiming he got everything he wanted. He could be doing that now. The way he backed off the crackdown on ZTE makes people -- even some of his own people -- wonder how serious he is about getting tough with China.

But even if he cuts ZTE some slack, he risks looking humiliatingly weak if he lets China completely off the hook. Having demanded that China reduce its trade surplus with the U.S. by a whopping $200 billion in two years -- a demand the Financial Times' Martin Wolf called "ridiculous" -- he will find it difficult to accept minor concessions and dress them up as victories (…).

Never mind that 11 out of 10 economists will assure him that trade deficits are irrelevant. Never mind that experts dispute his calculation that China has cost the U.S. 3 million jobs. Never mind that most of the manufacturing jobs we've lost, however we lost them, are never coming back.

Never mind all that, because two very important things are at stake, and likely to give Trump broad political cover for continuing his aggressive assault on China's trade practices. One is the rules-based international trade system that Friedman sees China's mercantilism putting at risk. The other is the assault on American technology that worries Bergsten.

In Trump's inner circle, as in the commentariat, there's division over which of these things is more important and how best to deal with China. But there's a lot of momentum in the capital behind hanging tough and taking risks if that's what's needed to make China change course. Farmers and ranchers can't assume their exports won't be among those risks. They may yet again find themselves looking for a deus ex machina.



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