It now appears that both US and Chinese leaders are settling in for a long-extended trade war. There is very little that Trump can now bring to the American people that shows that he has won. Chinese nationalism has also gained a hold, as people now believe that the US government is attempting to bully and humiliate them. There are also some benefits to China of pushing a lengthy conflict.
What are the Chinese Advantages?
China has several advantages over the US in pursuing a lengthy conflict. They have flexibility in economic policy and stimulus actions to boost the Chinese economy. They also have nationalism on their side. Chinese leaders have been successful in describing a situation where the US administration is attempting to bully China. While Chinese leaders have time on their side, it is only 18-months until the US presidential elections.
What is Going on in the US?
US farmers are likely to lose soybean export customers in China. The longer the trade dispute last the greater the erosion of an export market. The top executives of the US Soybean Export Council told farmer this would be the case last week. China is also unlikely to return to importing record volumes of US soybeans, as the world’s top soy consumer did as recently as 2016 regardless of whether there is an agreement between the US and China. This means that US farmers will need to find a new home for soybeans, and only a new administration will likely be able to heal the wounds. The commentary of the US soybean export council was different than those from USDA Secretary Sonny Perdue who repeatedly says he believes there will be no long-term impact from the trade dispute. The question is whether farmers believe the council or their president, who is relying on their vote in 2020.
What is the Crux of the Issue?
The crux of the issue is intellectual property. China’s growth, which can be followed on the iFOREX economic news, is an emerging country. As such, it requires that companies that want access to its 1.3-billion people will provide the government with intellectual property prior to selling their goods. This policy covers everything from technology to lifesaving medication. It also means that any research that is conducted by companies is a mute investment as soon as a company enters China. The product and technology will be copied, and a competitor will rise within a few years.
While this conundrum happens around the globe and no country is happy about it, Trump has decided to fight this issue on his own. By not gaining a consensus with his trading partners, Trump has isolated the US on this issue and will now have to pursue his cause while farmers across the United States suffer from the worst soybean slump in history. Politics will play a significant role in how this trade dispute finally plays out.
Brought to you by Justin Weinger.