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President Trump and U.S. Agriculture Trade with China (Video)
By: Brett Stuart, Global AgriTrends
TAGS: Swine
 
January 25, 2017 -

This is Brett Stuart of Global AgriTrends with an AgStar video blog. Today I'd like to talk and maybe even vent a little bit about US ag trade with China. President Trump's hot rhetoric against China has raised some serious concern. China manufactures much of what we buy and use each day. These goods are not only manufactured by US companies operating in China, but by Chinese companies also. "Made in China" has become the motto of global consumerism. We've all seen it on pretty much everything we buy and consume. President Trump claims that we've been out traded by China, that they've intentionally weakened their currency as a means to fuel exports.

That argument is likely true, but that same argument could be made historically of other Asian countries like Japan and Korea. Another Trumpism has been the call for US companies to move manufacturing back to the US. Some of that can happen, some probably not. Some low tech manufacturing will never be competitive in the US, but other jobs may, especially if Chinese products face the 35% duty to enter the US market. These will be key battles in the new administration and China may retaliate, but what about US ag trade with China?

The best way to explain this is that we have a bipolar, codependent, complicated relationship. We face not only agriculture issues, we face cyber hacking issues, intellectual property theft, and military friction over global shipping lanes. Agriculture's not on the top half of key national issues between the US and China, however, the one thing that does matter is soybeans. China needs US soybeans, both in quantity, and as a market wedge against Brazil. In 2016, 73% of US agriculture exports to China were comprised of soybeans, but China doesn't really need much else in terms of agriculture.

While we shipped 16 billion in soybeans last year to China, we also shipped about 5.8 billion in non-soybean agriculture exports, mostly grains and pork, but these other commodities have not faced nearly as warm of a welcome into China as soybeans. There have been a lot of trade restrictions. As you watch these negotiations move forward, consider my theory. All Chinese policies revolve around social stability. Food security is important to social stability. With the caloric self-sufficiency ratio near 100%, China is too big to survive off of imported commodities, imported foodstuffs.

What that means is that their markets must remain profitable to keep the farmers farming, even if their costs are far higher than ours. For example, last week in China, corn was the equivalent of 5.98 US per bushel, dollars per bushel. That's 80% above the US price. Chinese hogs last week were about 116 bucks 100 weight. That's a full 146% above US prices, but food security's paramount. Economics takes a backseat to national strategic priorities, which is social stability. China must keep the farmers farming. 1.3 billion lives are at stake, so agriculture imports to China, while allowed, will probably never be freely liberalized.

Agriculture-Trade-with-China-graphicThe bottom line is this. Outside of soybeans, China doesn't need US agriculture. They buy some products, but they mostly restrict US ag. They're 95% self-sufficient in pork, and higher in other key commodities. They buy no US chicken due to the bird flu bans of 2015, they buy no US beef due to the mad cow discovery, BSE, back in 2003, and they restrict US pork over ractopamine, a globally approved feed compound. US farmers have long dreamt of the potential of China's billion plus consumers, but the reality is outside of soybeans, they've gotten very little.

China continues to ban ethanol, they put restrictions, duties on ethanol, on grains. You think about all this, the US cast a key vote to allow China into the WTO in 2001, but since then, China has walked all over many of these key obligations, so I guess what I'm saying here is, bring on a tough discussion with China over agriculture trade. US trade officials have been arguing about the safety of US beef for over a decade, but tread carefully.

While US ag trade has not received much love from China, the flood of cheap Chinese goods to the US at a 35% duty could feel like a significant tax hike for millions of Americans. Again, this has been Brett Stuart of Global AgriTrends with an AgStar video blog.

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Brett Stuart
Global AgriTrends
Brett Stuart, a founding partner of Global AgriTrends, provides global analysis and reporting of market intelligence and trade data to the global agri-food sector. Brett was raised on a cattle ranch in Utah and also worked as an auditor, accountant, and controller in the agriculture industry. He received a undergraduate degree in accounting at Utah State and an MBA from the University of Nebraska. 
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