Washington Insider-- Tuesday
China Policy Evaluated
Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.
US Ag Exports Set Fresh Record In December
U.S. ag exports totaled $15.91 billion in December, setting a new record for the month and marking the first time that value of U.S. ag exports has topped $15 billion three months in a row. The prior monthly record was $15.82 billion that was set in December 2013.
The December total was up from $15.48 billion in November.
Imports of ag products totaled $11.65 billion, up from $11.37 billion in November. That left a trade surplus of $4.26 billion for the month. USDA forecasts U.S. ag exports at $152 billion in FY 2021 against imports of $137 billion for a surplus of $15 billion.
Three months into FY 2021, exports already total over 30% of the forecast for the entire FY. The highest totals for U.S. ag exports typically have come in the first quarter of a fiscal year, so it will be interesting to see if the sector registers another month at or above $15 billion.
While USDA does not forecast a trade surplus level — it is a function of their export forecast minus their import forecast — the total so far is just above 79% of the total. But the period for the largest imports still lies ahead in the March-June timeframe.
After starting FY 2020 with strong surpluses for the first three months, the trade data saw monthly deficits in six of the next seven months. The final result for FY 2020 saw exports at $135.87 billion against imports of $133.22 billion for a trade surplus of $5.7 billion.
USDA Farm Income Forecast Reflects Rising Crop, Livestock Receipts
USDA issued its first 2021 farm income forecast Friday, indicating it would be down from the 2020 level for both net farm income and net cash farm income.
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The downturn in forecast 2021 farm income comes mostly on the decline in expected government payments — falling from a record $47 billion in 2020 to $23 billion in 2021. The drop in government payments more than offset what is forecast to be increased receipts to farmers from their crops and livestock.
But this will not be USDA's final word on 2021 farm income. At this point in 2020, their farm income outlook for that year lacked the eventual government payments that flowed to U.S. agriculture via two rounds of COVID aid.
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Bloomberg is reporting this week that the China policy debate in Washington is often framed in terms of toughness and as a binary choice — President Joe Biden is either going to be tough or soft on China and former President Donald Trump's “Tariff Man” approach to the relationship is frequently the benchmark used, the report says.
However, Bloomberg thinks that the “more clarifying question” is whether Biden and his team will craft an “intelligent” approach to China that likely will be “the most significant strategic competitor the U.S. faces.” Last weekend, President Biden told the press that he plans a “new strategy” built around U.S. allies and global rules. “I'm not going to do it the way Trump did,” he said.
It's still unclear what that means in concrete terms in a world where commercial and geopolitical imperatives often clash. Allies in the European Union have their own strategic concerns yet still want an investment treaty with China to solidify economic links. Likewise, General Motors and Tesla still want to sell a lot of cars in the Asian nation.
Biden's new trade policy ideas also have come amid evidence that while President Trump may have installed China fears atop the American foreign policy agenda, his own trade strategy did not deliver the economic gains promised. The pandemic's effects on the global economy put a big asterisk on any analysis. But the numbers are stark.
The U.S. had 150,000 fewer manufacturing workers in January 2021 than it did in January 2017, the month President Trump took office, Bloomberg said last week. U.S. data for 2020 put the annual U.S. deficit in goods trade with China at $310.8 billion, $36 billion less than at the end of 2016.
That looks good for Trump, until you see that trade just went elsewhere, Bloomberg argues. The gap in goods with Vietnam was up by more than $37 billion over the same period. The shortfall with Mexico increased by $49.5 billion. The total annual U.S. goods and services deficit with the world grew by $197.5 billion, or 41%, during Trump's term.
The new president's team is also reviewing the “Phase One” deal that Trump signed with China a year ago. And Beijing also hasn't delivered so far on the first year of the two-year deal that calls for China to purchase $200 billion in additional U.S. goods over a 2017 benchmark. Though, again, that has a pandemic asterisk on it.
Bloomberg's economic experts say that, “Trump's legacy was to break an unbalanced relationship, one that delivered more benefits to China than the U.S.” It thinks that Biden's task will be to build a new approach, with U.S. interests at the center. Breaking things is quick. Building them takes longer. While the new framework for U.S.-China relations has the potential to substantially reshape economies and markets around the world, it's not going to happen right away, Bloomberg warns.
In a new accounting released Sunday, Chad Bown of the Peterson Institute for International Economics found Chinese purchases in 2020 fell 40% short of the deal's targets for that year. In 2020, U.S. manufacturing exports to China were still down 14% from when President Trump's trade war started in 2017, Bown calculated — which “Bloomberg thinks isn't good,” even if Boeing's 737 Max travails account for some of that.
Those metrics also come against a continuing debate over the cost in U.S. jobs of competing with China. In a celebrated 2016 paper, David Autor, David Dorn and Gordon Hanson estimated that between 1999 and 2011, increased imports from China — the “China Shock” — killed 2.4 million jobs in the U.S. But it turns out one of the most commonly used U.S. trade-defense mechanisms, anti-dumping tariffs, may have caused their own labor-market carnage.
In a recent working paper, Bown, Paola Conconi, Aksel Erbahar and Lorenzo Trimarchi calculate that the higher cost of imported inputs caused by those tariffs leveled at China caused the U.S. economy to create 1.8 million fewer jobs in downstream industries between 1988 and 2016 than it might have otherwise. A further 500,000 jobs were lost in the first two years of President Trump's presidency. The industries the tariffs ostensibly protected showed no meaningful job gains, the report says.
The policy lessons are messy because the relationships are complex. To get anti-dumping tariffs, petitioners have to prove “injury” via lost jobs or revenues. An industry needs a tangible “China shock” to secure tariffs that may lead to job losses among its clients. Lost jobs equal tariffs equal more lost jobs.
Anti-dumping tariffs aren't the only ones in place. Trump imposed duties on more than $300 billion in Chinese imports that are now being reviewed by the Biden administration. Even before the pandemic, these are often blamed for costly supply-chain disruptions and even a U.S. manufacturing recession. They also are often seen as contributing to a rotation of production out of China to Mexico and Vietnam, a geopolitical win if not an economic one.
How Biden digests all this is yet to be seen. Most of his nominees still need Senate confirmation and are navigating Washington politics by doing their best to look tough — for now. It's going to be a while before we learn just how intelligent their new China policy will be.
Bloomberg also noted that in a nod to the WTO, the U.S. gave its formal backing to Ngozi Okonjo-Iweala, removing the final obstacle to her bid to be the first woman and the first African to run the Geneva-based trade body. Also backed by the EU, Japan and China, world leaders hope Okonjo-Iweala can help steer the WTO out of its negotiating morass and help it deal with the modern, more complex global trading system.
So, we will see. Clearly, there is a, broad, intense interest about the details that are yet to emerge and define the new trade policies — and intense debates can be expected as these are proposed and implemented, a process that producers should watch closely as it continues, Washington Insider believes.
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