An Urban's Rural View

The Fog of (Trade) War(s)

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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The worst vantage point for assessing whether you're winning or losing a battle is the middle of the battlefield. There you mostly see random destruction and chaos -- the fog of war. One minute victory may seem at hand; another, the cause seems lost.

Maybe that's why the reports from the trade wars have been so unilluminating. American farmers and ranchers hear tantalizing predictions of ag sales to China, but those sales depend on a broader deal being reached, one that includes Chinese concessions on technology theft and extortion. Is a deal that comprehensive imminent? The reports see-saw, raising hopes, then dashing them to the ground.

Amid this trade-war fog, one thing seems clear: The Chinese are happy to talk about importing more American agricultural products -- maybe a lot more. That is not the case in another of America's unfolding trade wars. In the talks between the U.S. and the European Union, the EU is refusing to even discuss agriculture.

Why? Because the EU knows what the U.S. would demand: relaxation of the EU's non-tariff barriers to American products, starting with genetically engineered crops. Previous EU-U.S. talks deadlocked over the Europeans' refusal to budge on these demands, which are highly unpopular with the European electorate. In 2015 150,000 Europeans took to the streets of Berlin assailing a proposed EU-U.S. trade deal as a "Trojan Horse" for sneaking unwanted GMOs into Europe. (https://www.dtnpf.com/…)

Politicians in big industrial democracies take notice when 150,000 people take to the streets. They also take notice, however, when a trade partner threatens them with 25% tariffs on their auto exports, as President Donald Trump did last year.

Faced with that threat, EU President Jean-Claude Juncker flew to Washington last July to meet with Trump. The presidents agreed to further negotiations, during which the car tariffs would not be imposed. From the moment they announced their agreement, though, they differed on what the negotiations would cover.

At first the differences were subtle. President Trump said the EU would be importing more soybeans, and Juncker agreed. But that's all Juncker said he agreed to: "As far as agriculture is concerned, the European Union can import more soybeans from the U.S., and it will be done." (https://www.whitehouse.gov/…)

The official joint statement said the talks would "open markets for farmers." (https://eeas.europa.eu/…) But the two sides interpreted that wording differently. Speaking in Iowa the next day, Trump boasted, "We just opened up Europe for you farmers." The EU spokeswoman retorted that the EU had, separately from the talks, agreed to buy more soybeans and even more beef -- but that was it: "On agriculture, I think we've been very clear on that -- that agriculture is out of the scope of these discussions." (https://www.wsj.com/…)

Eight months later, nothing has changed. The two sides are still negotiating about whether they're going to negotiate about agriculture.

Apparently the ambiguity in the "open markets for farmers" language was there from the beginning. According to the New York Times, Larry Kudlow, the president's economic advisor, "shuffled drafts of the joint statement back and forth between the Americans and the Europeans, who were holed up in separate rooms in the White House. The Americans inserted agriculture into the draft, only to watch the Europeans take it out, according to one person involved in the discussions who was not authorized to speak publicly. The two sides finally settled on the phrase 'open markets for farmers and workers,' which the Europeans say referred only to the bloc's offer to buy American soybeans." (https://www.nytimes.com/…)

What's unambiguous is the unwillingness of either side to bend. The Europeans say there's no political support in Europe for a deal on bringing in GMOs. The Americans say if agriculture isn't open for negotiation, there will be no deal -- and if there's no deal, there will be 25% tariffs on Volkswagens and BMWs.

The tentative agreement to guarantee the U.S. part of the EU's import quota for hormone-free beef is a step in the right direction. But it was the product of a separate negotiation. It doesn't mean the EU is willing to put agriculture on the broader negotiating agenda.

Thus we find ourselves trapped in the same old box. Four years ago, then Agriculture Secretary Tom Vilsack told the Europeans what Senator Charles Grassley is telling them today -- no ag, no deal. (https://www.dtnpf.com/…) And the Europeans are saying now what they said then -- we have nothing to give on agriculture.

The difference between then and now is that the U.S. isn't accepting the deadlock. Instead our negotiators are threatening the car tariffs if no deal is reached.

The Trump team says this is just a negotiating tactic to bring Europe to the table. Let's be clear, though. Imposing these tariffs would be WTO-illegal. The administration's position, which is that the tariffs are necessary to protect U.S. national security, is laughable. Were the EU to challenge them at the World Trade Organization, we would lose. The WTO would give the EU the legal go-ahead to impose heavy counter-tariffs.

Not that the EU would wait for that go-ahead. Politically, it would have no choice but to impose heavy counter-tariffs on a variety of American goods immediately. The ensuing trade war would make the U.S.-China exchange look like petty fisticuffs. In the fog of this war, the world economy could trip into recession.

We have to hope it doesn't go that far. We have to hope the negotiators are creative enough to craft a solution that allows both sides to declare victory. For now, those hopes are shrouded in the fog of war.

Urban Lehner can be reached at urbanize@gmail.com

(ES/)

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