An Urban's Rural View

Letting Xi Eat Lamb

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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So Xi Jinping got his state dinner at the White House after all, contrary to the recommendations of certain Republican presidential hopefuls. And the Chinese president didn't have to settle for a Big Mac; President Barack Obama served him Colorado lamb and Maine lobster.

The fancy feast took place on a day when Pope Francis and John Boehner were dominating the headlines, so it got surprisingly little media attention for a state event starring the leaders of the world's two most important economies.

There were, to be sure, reports on the Obama-Xi agreement on climate change. It may or may not matter much in the long run, but the two countries disagree on so many things -- cyber-spying, currency manipulation, human rights, intellectual property theft, who owns the South China Sea -- that any time they agree, it's news.

China also used the visit as the occasion to sign up for $5 billion of American soybeans. As DTN Senior Analyst Darin Newsom noted (http://tiny.cc/…), the market didn't move on the news, which suggests traders expected the purchase. Outside agriculture, nobody noticed.

With so much tension in the relationship, the low profile for the state dinner probably pleased both presidents. Had there been more coverage, chances are much of it would have accentuated the negative.

Why, if the countries are at odds over so many things, throw a state dinner in the first place? Why not send a signal of displeasure and cancel it, as the sniping Republicans urged?

Well, for one thing, because it wouldn't have accomplished anything. Indeed, it might well have been counterproductive, humiliating the Chinese without giving them an incentive to change their behavior.

"Let Xi eat hamburger" is, it happens, but the latest variation on a timeworn election-campaign theme. More than one presidential candidate in recent decades, going back to Bill Clinton in 1992, has vowed to "get tough on China." Some of these tough talkers have gone on to become president and learn firsthand the limits of bluster in dealing with China.

Want to send a tough signal to China? Outmaneuver it in international diplomacy. Send the Navy to show the flag and in the interest of keeping the sea lanes open. Sanction Chinese companies that steal American competitors' intellectual property. Make the point with actions, not public condemnations.

Where our interests and China's differ, such actions say, we will not back down. But we do share some interests in common and treating a visiting Chinese leader to a state dinner says we'd like to share more.

"Speak softly and carry a big stick." That was how President Theodore Roosevelt summarized his foreign policy. A century later, alas, we find ourselves in an era of booming voices and unsteady stick wielding.

(CZ)

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Freeport IL
10/8/2015 | 2:52 PM CDT
htttp://www.bloomberg.com/news/videos/2015-10-08/chinese-smelter-stockpiles-dent-copper-inventories Bloomberg's Ken Hoffman reported on "Bloomberg Markets" about something called "Carry Trade". He explained; "According to FT ("Financial Times") around 70% of the imported copper into China is used in this trade." The smelters use their inventory of copper as collateral for a loan,let's say in Hong Kong, at 2%. They take the proceeds from the loan to invest in Mainland bonds which were as high as 14%. (The Yuan is a closed currency. So these rates are not available to outside investors.) The challenge will become as these trades unwind with currency declines and interest rate drops - both motivated by the center bank's goal of spurring on their economy. The unwinding will/could place this collateral - extra copper supply, back on the market, placing additional downward pressure of copper prices. As farmers, we do not particularly care about copper supplies and maybe even lower copper prices are better. However, we have heard of large "extra" supplies/reserves of cotton, corn and soybeans. Could these commodities be involved in the same type of financial trade? If they are, then the same environment that could cause copper to unwind would hit these other commodities as well. If this line of thought has merit, then our view that minimized the risk of slower Chinese growth is wrong. Maybe too much thinking time but has resulted in food for additional concern. Freeport, IL