Trade war lessons

By: 
Brad Monlar
Special to the Outlook
Thursday, August 2, 2018

As an interested observer of “fake news,” umbrage seems to come from the lack of discussion on the background surrounding the headline. My sympathy stops with the acknowledgement of the difficulty to flesh out an issue in a thirty second sound bite or there are too many issues competing for limited print space. So it is with the coverage of our worldwide trade war.

After six months of saber rattling, tariff bombs have been thrown. Showing raw political courage our entire federal delegation lauds President Trump’s $12B support program for farm prices impacted by his trade war. They have offered zero discussion on alternatives to trade wars. Let the discussion begin; right after the application of a Cat O’ Nine Tails. 

 

No news

During the recent primary there was a set of “Burma” style political signs on I-90 near Lockwood. Written in Chinese they said,” Vote for Russ Fagg, It’s Been Shown, The Job You Save, May Be Your Own, Russ Fagg for U.S. Senate”.  The Billings Gazette was invited to the sign site to discuss ramifications on Montana ag producers from the pending trade war and alternatives to current trade policies. They declined. 

 

Background

Until 1998 our trade policy was granting Most Favored Nation (MFN) trade status to nations agreeing to non-predatory trade practices. Individual nation’s trade policies were reviewed annually with adjustments made as necessary. Newsworthy adjustments were rare as nations with MFN status had to be treated equally. The brake was in the annual review.  

In 1998 MFN biforcated into Permanent Normalized Trade Status (PNTS) which was granted to some former MFN countries. The two criterions for inclusion were member nations must allow their citizens to emigrate to the U.S. (no longer a priority) and sign a bi-lateral trade agreement with the United States. China had been granted MFN pursuant to annual review and denied PNTS due to concerns over human rights violations and worker conditions leading to unfair competition.

 

Blame it on Bill

In the last year of his presidency Bill Clinton surmised it was important for U.S. ag producers to have access to China’s massive population. Business interests also lobbied Clinton to eliminate annual review of China’s trade policy. They said this “stability” was necessary to move manufacturing to China. Permanent Normalized Trade Status was granted to China by Congress in 1999. 

 

It worked

 China increased U.S. ag imports by 700 percent from 2000 to 2017. China is now the largest importer of U.S. produced soybeans, feeds, hides, hay, dairy, processed poultry, beef, and pork, and wheat. These total almost $24B annually while we import food stuffs from China at less than $5B per year. 

President Clinton’s hope for U.S. manufactures to outsource to China materialized to the benefit of consumers in the form of low prices. Employees of manufactures that kept a U.S. base have taken it on the chin. In 2000 the U.S. exported $16M in products to China and imported $1B worth. In 2017 the U.S. exports to China totaled $130B and imports were $505B. The trade deficit has shrunk percentage wise though grown dollar wise. 

The main focus of President Trump, and therefore the press, is the generic term “tariff.” Lack of specificity is understandable; there is no specificity in Chinese tariff policy. It is a combination of calculations based on cost, insurance, agent’s fees, and freight to get a product to China combined with value added taxes, international, regional, and local price observations. Variances are legally given to economic zones, open cities, and for the development of key industries.

 

It’s only money

China assesses tariffs on U.S. goods at MFN rates. The Value Added Tax etc. is added after the tariff so they are a separate treatment that can render the tariff rate immaterial. As a member of the World Trade Organization China should tax domestic production at the same rate imported goods are. Importers complain that Chinese domestic production is often not taxed. China says that since the domestic producer is often a governmental entity/partner they would be taxing themselves so are exempt. 

Trump, or any other president, will not see permanent positive results by debating tariff rates every twenty years. Quiet, annual, holistic review to get small problems ironed out before they become big problems may not be the preference of some political donors but it seems the path of the past is the smoothest path for the future.

 

Any hope?

 Though Congress should reconsider annual review candidates for congress are not discussing trade policy but rather who bought a home/ranch where.       

Upcoming Events

Tuesday, November 20, 2018
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