May market report: Talk vs. action in international tradeBack
For watchers of government and big business, it’s one of the first things they teach you. You want to know what’s really going on? Watch what they do, not what they say.
Recent moves and counter moves in international trade have everyone nervous about how new tariffs announced by the Chinese and American governments will affect their ability to do profitable business in a global economy. Dairy is no exception.
But an examination of what key players are actually doing will show that threatening rhetoric may not reflect reality.
What they say
Long before he was President, candidate Donald Trump claimed unfair trade deals put the U.S. at a grave disadvantage on the world stage. He’s repeatedly singled out China and initiated an investigation last August which resulted in allegations of unfair trade practices including what amounted to intellectual property theft.
Trump announced up to $60 billion in tariffs on Chinese goods in late March. Naturally, the Chinese responded. $50 billion in tariffs on key U.S. exports were announced on April 4. Trump then fired back with a planned $100 billion in additional tariffs the following day.
We discussed tariffs and how they might impact the U.S. dairy industry in this episode of our podcast, The Milk Check. We noted that while exports of some U.S. dairy products seemed to be strengthening, it may just be due to firms wanting to secure stronger inventories before higher prices set in.
But tariff announcements are just announcements, especially when they come with 180-day delays before they go in force. So where do we stand in the interim?
What they’ve done
Without a doubt, the tariff announcements have already affected some markets. U.S. pork and soybean producers were nervous to begin with; they met each of Trump’s trade complaints with warnings against putting their key export markets in jeopardy. Hog markets tumbled at the news of Chinese tariffs on U.S. pork.
But let’s zoom out to a more general vantage point. The tariffs came with a 180-day delay to buy time. You can bet that with a little less than five months to go before the tariffs set in, meetings are underway to work out the differences. What looks like a frantic game of public chicken is probably more like a cool-headed chess match behind closed doors.
What’s more, the dairy industry itself appears to be acting as though the threat of a trade war isn’t as scary as it’s been made to sound. The prime example is the announcement on April 2 that the U.S. Dairy Export Council joined with Chinese industry and educational leaders to form an innovation partnership. It’s a long-term program in which American dairy industry experts would be made available to a key Chinese university dairy science program in exchange for a further opening of Chinese consumer markets to U.S. dairy exports.
We think that partnership more closely reflects the consensus of the American dairy industry—and maybe even that of the government, too. They’re playing the long game. This joint venture is evidence that industry leaders on both sides of the Pacific are looking forward to a trade relationship that gets stronger over time, not weaker.
Another example is the dash by nations in all corners of the globe to ink trade deals. Here’s a short list:
- The European Union either has concluded or remains negotiating separate agreements with Singapore, Mexico, Japan, Canada and the Mercosur states.
- As of late last year, Japan was negotiating a trade deal with China and South Korea as well as separate deals with Columbia and Turkey.
- Multiple trade agreements between China and a host of other nations are either under study or in talks.
Even Trump may be seeing the light: Last month, he said that the U.S. may try to jump back in on a revamped TPP. It shows that his administration likely believes the long-term cost of lost global trade opportunities isn’t worth the short-term gain of appeasing a small chunk of American voters.
This softened stance on global trade may also be a signal that the Trump administration is staring down the barrel of a government revenue problem, having realized its veer toward protectionism may do little more than hamstring the businesses who were meant to benefit from tax cuts starting this year.