Washington Insider-- Monday

Dealing With China and Climate Change

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Australia to Bring WTO Case Against China Over Barley Duties

One day after China imposed preliminary antidumping duties on Australian wine, Australian trade officials said they intend to launch a World Trade Organization (WTO) dispute targeting earlier duties China levied on imports of barley.

The events mark the latest salvos in an intensifying trade and diplomatic row between the two countries. Asked about prospects for bringing a WTO dispute against China over the 80.5% barley duties, Australian Trade Minister Simon Birmingham told reporters Sunday (November 29) “I expect that will be the outcome.”

Australia is currently “working through exactly when and making sure we have the evidence lined up,” Birmingham said of a WTO complaint. “Last week, through the trading goods committee at the WTO, Australia outlined seriously our range of concerns in terms of this accumulation of instances from China of adverse trade decisions against Australia,” he detailed.

The wine duties, however, are not expected to be part of any initial WTO dispute, Birmingham noted.

Surging Chinese Imports of US Corn Set To Continue: Bloomberg

China's appetite for US corn is expected to continue to strengthen in the year ahead, with imports trending towards the high end of current expectations, Bloomberg reported.

Bloomberg cited sources familiar with purchasing plans of state-owned Cofco Corp., saying the firm is likely to boost purchases of US corn beyond already robust levels. The news comes about a week after Chinese corn imports exceeded the country's annual tariff rate quota (TRQ) — currently 7.2 million metric tons — for the first time.

“The fact that China has exceeded its feed grain import quota already tells you there's a great need there,” Rabobank analyst Stephen Nicholson told the outlet. “And it doesn't seem to be slowing down.”

China's continued rebound from COVID-19 and the rebuilding of its swine herd following a devastating African swine fever (ASF) outbreak are both helping to drive corn imports higher, Bloomberg noted. Meanwhile, China has turned to the US to satisfy that demand as other suppliers—including those in South America—see more supply disruptions.

Washington Insider: Dealing With China

Bloomberg is reporting this week that the U.S. will soon have a new climate czar, John Kerry, the former senator, secretary of state and presidential candidate. In explaining the role's placement within the National Security Council, President-elect Joe Biden said he wanted to put “climate change on the agenda in the situation room,” the report said.

The report also notes that “critically, this structure signals that the new White House is searching for common ground with China.”

Kerry is widely credited with putting together a US-China agreement in 2014 to reduce carbon emissions, a breakthrough that paved the way for the Paris Agreement the following year. That deal was a template for the kind of collaboration that many argue is now essential. Without cooperative action, former Secretary of State Henry Kissinger warned at last week's Bloomberg New Economy Forum, “The world will slide into a catastrophe comparable to World War I.”

Kerry is clearly expected to reprise his role as the Beijing bridge-builder, Bloomberg says.

“While some have decided that we are entering a new Cold War with China, we can still cooperate on critical mutual interests,” Kerry told the New York Times last month calling for joint action to protect the Southern Ocean. Geopolitics, he insisted, “must stop at the water's edge.”

Some critics, however, contend that Kerry, under President Barack Obama, gave up too much in return for Chinese acquiescence on climate — for instance, by soft-pedaling human rights—and they fear a Biden presidency may make the same mistake. “Sending Kerry to negotiate with Chinese President Xi Jinping on climate is a recipe for returning home dressed in a barrel,” said the Wall Street Journal editorial page recently -- typically not a fan of the Obama administration.

But U.S. public attitudes on China have hardened since the Obama days and few now expect a Biden White House will go any easier on China over contentious issues like Uyghur detention camps or the militarization of the South China Sea. Indeed, Biden's expected choice to head the Pentagon, Michele Flournoy is “very much the hawk” Bloomberg says.

So, it is increasingly clear that strategic rivalry is now hard-wired into the U.S.-China relationship, and there's a growing acknowledgment by figures in both Washington and Beijing that—while it can be mitigated—it's unlikely to be resolved readily by any effort to get along.

Certainly, Chinese leaders are digging in for protracted hostilities, so much so that President Xi Jinping is reorienting the entire economy toward “self-reliance,” fearing continued U.S. tariffs, technology embargoes and financial sanctions. In congratulating Biden on his win, President Xi Jinping alluded to these gathering tensions, but also the need to manage them.

The official Xinhua News Agency quoted Xi as saying he “hopes that the two sides will uphold the spirit of non-conflict, non-confrontation, mutual respect and win-win cooperation, focus on cooperation, manage differences [and] advance the healthy and stable development of China-US ties.”

Pandemic control is an obvious area of collaboration, Bloomberg says, along with mass migration and financial stability. On climate, says Fu Ying, a former Chinese ambassador and vice foreign minister, “the world expects China and the U.S. to play a leading role and the two countries have a lot to work on together.”

While Kerry won't save the U.S.-China relationship, at least not all by himself, but one could argue that a joint effort to save the planet would increase the odds that the two countries will avert disaster, Bloomberg concludes.

So, nobody thinks Kerry's task will be easy. While trade tensions and China's retaliatory tariffs slashed US agricultural exports to China in 2018 and 2019, China's agricultural purchases from the rest of the world continued apace and it has become the world's largest agricultural importer, USDA said last fall. It is surpassed both the European Union and the United States in 2019 with imports totaling $133.1 billion.

What's more, the composition of China's imports is also rapidly changing. Whereas bulk commodities once dominated, higher-valued consumer-oriented products are now surging ahead, eclipsing the former for the first time in 2019. And, while implementation of the U.S.-China Economic and Trade (Phase One) Agreement and the economic response to Covid-19 currently overshadows the trade landscape, the biggest challenges facing U.S. agricultural exports in China may be a combination of competition from other suppliers and US agriculture's ability to meet China's increasingly diverse import needs, USDA said.

It sees a combination of rising income and living standards, increasing urbanization, and food safety concerns fueling China's future agricultural imports, already a strong trend since the country's accession to the World Trade Organization in 2001. As incomes rose, the average Chinese diet changed to include more meat, dairy, and processed foods, while grain consumption declined. Between 2000 and 2019, per capita consumption of poultry meat increased 32%, soybean oil consumption more than quadrupled, and fluid milk intake more than tripled, USDA said.

So, Kerry's job will be challenging. U.S. producers can be expected to compete strongly for China's growing markets and China will clearly need access to U.S. production to satisfy its growing consumer demand. Whether this “two way street” of trade flows can overcome the enormous bitterness arising from all the other competitive areas -- and the long history of clumsy postures on both sides remains to be seen, but likely will mean fights U.S. producers should watch closely, Washington Insider believes.

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