Washington Insider -- Tuesday

More Sophisticated Discussions on Trade

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

April Could See Senate Farm Bill Action

The next farm bill is on track in the Senate and may move as soon as April, Senate Ag Committee Chairman Pat Roberts (R-Kan.) told Bloomberg Government. Work is underway to prepare the Senate version of the farm bill reauthorization, he noted. "We could have a markup in April," Roberts said. "I do not know if it is that first week but maybe the second, and we will see if we can get it done."

Meanwhile, the House farm bill process has slowed considerably or potentially even halted in the wake of Democratic members of the Ag panel halting negotiations over GOP efforts to reform the Supplemental Nutrition Assistance Program (SNAP). Rep. Collin Peterson (D-Minn.), ranking member on the House Ag Committee, claims the Senate bill actually will increase food stamp benefits and does not propose any cuts to the program. "I am going to be supporting the Senate bill, not the House bill," Peterson said. The current farm bill expires on September 30.


Smithfield CEO Sees Limited Impact on China Pork Import Duties

China's import duties on U.S. pork may have a limited impact on Smithfield Foods, according to CEO Kenneth Sullivan. China only buys seven percent of Smithfield's fresh pork output and Sullivan said the company may still ship pork to China. "We will find markets," Sullivan said in a Monday analyst call. "We ship to more than 40 countries. We may very well ship to China even with an increased tariff." China has said it may impose duties on pork and other U.S. products in response to the threat of the U.S. setting steel and aluminum duties on Chinese products.

China's WH Group, the owner of Smithfield, has seen its shares come under pressure in the wake of the Chinese tariff announcement, a situation which Sullivan said was an overreaction by traders. He also said the pressure on pork prices may also end up benefitting Smithfield.


Washington Insider: More Sophisticated Discussions on Trade

During the recent presidential campaign, both candidates were extremely negative on trade and its impacts, and the media mainly let those arguments stand. More recently, there have been a number of more thoughtful analyses presented as doubts grew about the use of “trade balances” used by administration officials to push for changes.

For example, the New York Times recently carried a review of recent trade policies and developments and reported that the increasingly connected world economy in the 1990s and 2000s brought increased competition and some pain to rich countries, along with benefits that only now are more apparent.

No one should be surprised at the backlash to globalization, given the scale of disruption that has resulted from more interconnected economies. What is surprising is that it has arrived now, the Times says.

That’s because globalization, at least in the form we have known it, “leveled off a decade ago.” And that presents a crucial risk of the recent push to re-set the terms of the global economy. That includes tariffs on steel and aluminum and punitive actions against China.

These policies are coming after the major costs of globalization have already been borne, the Times says. And they come just as billions of people who have become integrated into the global economy are starting to become wealthy enough to become valuable consumers.

The anti-globalization drive spreading across the Western world may be too late to recreate the low-tech jobs that were ended--but may be early enough to risk damaging the ability of rich nations to sell advanced goods and services to the rapidly expanding global middle class.

Today’s globalization is entering a new phase, in which cross-border trade in goods and services is steady as a share of the economy and the international flows of capital are lower than they were before the global financial crisis, the Times says. It is now the spread of information that is rising, with different implications for workers in rich countries than the earlier phase.

Starting in the 1990s, improvements in communications and shipping technology widened global competition. Trade deals reduced tariffs and other barriers to commerce. And many once-poor nations became more integrated into the global economy.

This adjustment provided a wave of affordable goods and opened up new markets for rich countries, but it also boosted competition for certain sectors and areas, especially those involved in manufacturing low-tech products.

The flow of goods and services across national borders as a share of all economic activity hovered near 16 percent through the 1980s and early 1990s, then from 1993 to 2008 shot up to 31 percent. There it stopped and bounced around that level, according to data from the McKinsey Global Institute.

At the same time, the international flow of money had a different pattern. Cross-border financial flows peaked in 2007 at 22 percent of world GDP but were down to 6 percent in 2016, about the same as the 1996 level.

Now, McKinsey says “Global manufacturing has already reconfigured itself. We don’t think globalization is over, but it has taken a new form.”

That form consists of greater connectivity and communication. That includes more people using social media platforms to connect with people in other countries, companies relying on freelance labor located around the globe, and small enterprises doing business with partners around the world through the internet.

It is not a form of globalization that endangers factory jobs, but one that could have big consequences in other areas including technologically advanced white-collar jobs. It also creates enormous new opportunities for American and Western European firms.

The MIT economist David Autor and colleagues believe that the current challenge is competition on more technologically complex products, like automobiles, airplanes or microprocessors.

If the latest trade skirmishes do blow up into a trade war, those new barriers to international commerce might also block a long-predicted reward of globalization: a new world of customers.

The rise in global economic integration has meant hundreds of millions of people becoming more connected to the worldwide economy and achieving higher standards of living in the process. In 1990, only 23 percent of the world’s population fit that category. Today 45 percent do, meaning an additional 2.3 billion humans are now able to afford the luxuries that the global economy provides. The Times argues that it’s wrong to view these billions of people only as competition for good jobs. They also have a massive demand for all types of services.

Rather than view globalization as a perpetual onslaught of low wage competition for American workers, NYT proposes the phenomenon makes everyone both a competitor and a customer.

With trade battles looming on the near horizon, the open question is whether the United States and Europe, having already borne the costs of competition with the developing world, will stick with open trade long enough to enjoy its benefits, the Times says.

So, we will see. We have seen an enormous expansion of ag competition that benefitted the United States. The question remains how to insure that access is expanded rather than constrained, and that trade barriers continue to be reduced. This is a policy debate producers should watch carefully as it proceeds, Washington Insider believes.


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(CC/BAS)