Sort & Cull

USDA Secretary Perdue has been making the rounds of Twitter this week, not explaining the logic of using soybeans, pork, and beef as cannon fodder for the brewing trade war with China, but rather glibly saluting the unwittingly brave soldiers of agriculture as great "patriots."

If you thought the new army was a volunteer force, think again. Apparently, the Trump administration has reinstituted the draft in order to wage a dubious economic battle with China, and large segments of farm country have been quickly classified as "1A."

To be sure, the direct blame for ag's pending induction goes to the Chinese government which has strategically targeted specific U.S. commodities in terms of retaliatory tariffs. If somebody first throws a punch, it makes sense that counterpunches will soon follow -- unless you're trying to pick a fight with Jesus or Buddha.

Yet certainly it would be disingenuous for the White House to say something like, "We didn't see these bean and meat tariffs coming." You didn't need a Noble Prize in Economics to anticipate retaliatory tariffs precisely designed to sting the political heart of Trump country.

In the old days of the Cold War the headline would have read "Red China Attacks Red States."

Please don't misunderstand. In another context, I would enthusiastically shout "AMEN" to Secretary Perdue's characterization of U.S. food producers as "patriots." Farmers and ranchers have always been among the most loyal, dedicated, and self-sacrificing Americans when called upon to serve the good of the country.

But, while they proudly don the robe of patriotism, many understandably bristle when they are singled out to be unthinking nationalists rather than true patriots, individuals who are expected to blindly accept unfair burdens in service of a dubious cause.

So is the current staging of a trade war a dubious cause? While I'm certainly not the smartest man in a very small closet, I think I know enough to at least question the president's two main justifications for having at it with China: 1) The huge trade deficit the U.S. currently has with China is simply unacceptable; and 2) China must be called on the international carpet for it flagrant abuse of intellectual property rights.

Briefly, let me suggest that the first represents a dangerous solution in search of a problem while the second represents a very serious problem addressed by a poorly conceived and ultimately ineffective solution.

The Trump Team apparently sees global trade as a zero-sum game, an economic contest that results in winners and losers. Countries with big trade surpluses (i.e., selling more goods to foreign countries than they buy from those countries) are winners, countries with big trade deficits (i.e., buying more foreign goods than they sell domestic goods to foreign countries). Yet as that great musical economist George Gershwin told us, "It ain't necessarily so."

All trade deficits are not equal. For example, a large deficit combined with high unemployment is definitely bad news, possibly calling for trade adjustments to stimulate the creation of more jobs at home. On the other hand, a large trade deficit coupled with low unemployment (like the current situation) can be seen as more than acceptable, especially in the way it encourages other countries with large surpluses to invest surplus capital in U.S. companies, infrastructure, and government bonds.

On the other hand, the highjacking of intellectual property is a less ambiguous problem, one costing American entrepreneurs (and indirectly American consumers) billions of dollars. President Trump is to be commended for aggressively searching for a solution. Furthermore, China is unquestionable guilty of ripping off everything from seed genetics to movie copyrights to manufacturing technology.

Unfortunately, China is not the only bad player at the trading table. Intellectual property rights are also rudely mocked in countries like India and Russia. Indeed, some would argue that not all members of the American business community have completely clean hands. In short, this is a serious problem that transcends the borders of China -- a global dilemma that demand a global solution.

Along the same lines, the U.S. is not the only victim of intellectual property abuse. Businesses in Japan, the EU, and South Korea are feeling the same kind of economic pain. Not only are these the international partners the U.S. needs in intellectual property problem solving, these are the same critical allies that the Trump Administration is currently alienating with its reckless rhetoric and aimless protectionism.

Getting back to Perdue's misguided cheerleading this week, thoughtful "patriots" struggling to make a living raising red meat and soybeans just can't stop thinking of a great irony.

If President Trump's great foreign policy mission was to confront China and ensure greater economic leverage for the U.S. all along the Pacific Rim, why was canceling U.S. participation in TPP one of his very first acts in office? Besides lowering tariffs on U.S. ag products in many critical markets, the TPP would have established our country as a major economic counterweight against China in that part of the world.

Maybe he thought trade war rhetoric would play better on Twitter and Fox. Maybe he thought farm patriots just wouldn't mind.

For more from John see www.feelofthemarket.com

(CZ)

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