About a month ago – it is almost hard to keep track of time in the current rush of news – Iowa suddenly found itself smack in the middle of a trade war that it had nothing to do with. The man whose hobby is playing president threatened to impose tariffs around the world on aluminum and steel.
In reality our Dear Leader was aiming specifically at Chinese imports, but instead sent out a shotgun blast. The Chinese were hardly fooled. They responded with some tariffs of their own that were much more strategically targeted. China aimed their tariffs at major products from states that went heavily for Trump in the 2016 election or had top Republican politicians. Among the targets were bourbon from Kentucky and corn and soybeans from many midwestern states, especially Iowa. Sorghum from Texas, Kansas and Arkansas was also hit hard.
The blowback from the tariff policy was just another in a line of simply stupid trade decisions made by the administration.
During the campaign Candidate Trump said he would pull the US from the Trans-Pacific Partnership (TPP). Upon inauguration, he did just that. Speculation was that US withdrawal from the TPP would sink the organization. Instead, Japan took up the mantle of leadership. Eleven countries signed an updated TPP known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March without the US.
One of the goals of the TPP was to mitigate China’s power in trade in the Pacific area. Based on the tariffs that the administration imposed unilaterally that was the administration’s focus also. Without the trade partnership, the US was singularly exposed when it imposed tariffs.
At the same time the administration was in the process of screwing up deals in the Pacific it was also trying to impose its will by reopening NAFTA to get some much more US friendly provisions. The administration felt it could dictate terms to our long time and best trading partners. Canada and Mexico also wanted to do some renovations, but they had their own ideas for changes that did not favor the US.
Currently negotiations are in a slog. Let us hope that our arrogance doesn’t totally sink NAFTA. Canada and Mexico have taken out a little insurance against NAFTA by joining the TPP. Mexico even went one step further last week by inking a trade pact with the European Union late last week. From CNN:
Mexico and the EU said last year they would accelerate their talks to update a trade agreement signed in 2000 as the United States threatened to slap tariffs on Mexican imports and withdraw from NAFTA.
Officials appeared to take a jab at US President Donald Trump’s policies in statements praising the Mexico-EU deal as a defense of “open” and “rules-based” trade.
“Mexico and the EU worked together and reached a mutually beneficial outcome,” said European Commission President Jean-Claude Juncker. “We did it as partners who are willing to discuss, to defend their interests while at the same time being willing to compromise to meet each other’s expectations.”
The deal marks a move by Mexico to pivot away from its reliance on trade with the United States.
One US sector which may be taking a major hit from this trade pact is the dairy industry. dairyreporter.com reports that the new pact opens up markets for both European and Mexican dairy industries that will probably come at the expense of the US dairy industry. The US dairy industry is already in some serious straits, with dairy farms closing around the country.
While Mexico and Canada look to protect trade for their countries, China has not been sitting idly by as the US administration talks trade wars. China has been putting together a group called the RCEP or Regional Comprehensive Economic Partnership. From a David Cay Johnston interview:
Trump, of course, claims we’ve made all these terrible deals, but instead of seeking new ones after cancelling the Trans-Pacific Partnership (TPP) and ignoring the new Euro Japanese agreement, he’s done nothing. Nothing. So who has that benefitted? Well, I don’t know if you’ve ever heard of the RCEP, but that’s China’s Regional Comprehensive Economic Partnership. China has gotten 15 pacific rim countries plus India in a new trade pact, and basically Chinese diplomats are saying to these counties, “Look at what’s happening to America. It’s falling apart. Look at who’s the president. If you want a prosperous future, tilt away from Washington, and pivot toward us.” Australia is by far our most loyal ally, but the Australian government is pivoting away from Washington towards Beijing. Over time, that will cost American jobs, American wealth, and it’s going to help China expand both its economic, political and its military power in the pacific to our detriment.
While our media concentrates on the explosion of the day around the administration, our failing trade systems go pretty much unreported by the major outlets.
The instability now and possible failure in the future will have huge implications in Iowa’s farm based economy.
Part 3 in about an hour