Trade is the mother of money. ~ Thomas Draxe (1613)
News about the US-China trade war has
been eclipsed by the midterm elections. The elections are now (almost) over;
the trade war continues.
Thousands of products’ prices have been increased by the US
and subsequent Chinese tariffs. The US tariffs, started in May by the
president, are imposed on $200 billion (B) of Chinese imported goods, 40% of
2017 Chinese imports to the US. You can see the full list of tariffed items from
the US Trade Representative here.
This document is 194 pages long; starting with “Frozen retail cuts of meat of
swine, nesoi” all the way to “Furniture (o/than seats/than of 9402) of plastics
(o/than reinforced or laminated).” In retaliation and predictably, China has
imposed tariffs on roughly $60B US exports to China, which represents 46% of
2017 US exports to China. Although China has certainly stretched WTO protocols
to its advantage and broken others, it’s highly doubtful that hardball tactics
like 194 pages of tariffs is worth the pain and cost that’s harming soybean
farmers, lobstermen and thousands of other business-people and citizens.
The US imports more goods from
China than any other nation in the world. This fact is reflected in the
sizeable trade deficit the US has with China, $375.6B in 2017. China’s dramatic
economic growth over the past decade has been export driven. It is the leading
exporter of goods in the world, ahead of the US. China’s exports of goods
represent a large 18.6% of its GDP. In contrast, US exports of goods represent
just 6.9% of our GDP. As a consequence of the trade war, the monthly US trade
deficit increased
in September from $53.3B in August to $54.0B in September; extra costly imports
increased more than curtailed exports.
In examining the current trade
conflict with China, I here focus specifically on US farmers, who are enduring heavy
and direct economic cross-fire from the president’s trade war. Currently, more
than 20% of US agricultural exports face reciprocal tariffs from China and
other countries.
I examine an incongruous pair of harvested
products, soybeans and lobsters, which are now subject to Chinese tariffs. Last
year, before the president initiated his tariffs, the US exported to China $21.6B
of soybeans and $128.5 million of live lobsters. Before we dive into marine
crustaceans, let’s first consider soybeans.
Soybeans. The soybean
(Glycine max) is a legume species
native to East Asia, widely grown for its edible bean. US farmland is awash with soybean plants, shown below. For the
first time in 35 years, soybeans are now planted on more
acreage than any other crop– 89 million acres. In other words, soybeans are
big, very big agriculture. Soybeans are the nation’s single largest
agricultural export, more than double that of corn. In part this is why China
imposed a retaliatory 25% tariff on US soybean exports. The other part is based
on where soybeans are grown – in true red Trump country. The top 6
soybean-producing states are rural parts of Illinois, Iowa, Minnesota,
Nebraska, North Dakota and Indiana. In addition to being the source of all
things in the tofu universe, unfermented soybeans are used in animal
(especially pig) feedstocks, and as an ingredient for biodiesel fuel and
crayons. Fermented soy foods include soy sauce.
Over the past 6 years American soybean production has
increased 44% in part to meet ever-growing export demand. In 2016 US exports
represented 47% of total US production. The Chinese market dominates US soybean
exports; it’s 6.5 times as large as the EU, the second largest foreign market
for US soybeans.
The Chinese tariffs likely have
changed all that. US soybean sales to
China plunged by 98% since the beginning of this year. Prices have fallen 22%
since April. “It’s a big concern,” understates David Williams, a Michigan
soybean farmer.
In addition, the USDA expects farm incomes to drop by 13% this year. The ratio
of farm debt to assets is forecast to rise to its highest level since 2009. The
trade conflict, which the president initiated with steel and aluminum tariffs,
has spread far afield.
Some optimistic soybean farmers
hope that because they help feed the growing Chinese middle class, where soybean-fed
pork has become a mainstay of their diet, China’s need for US soybeans will
become more acute later this year when Brazilian soybeans – the world’s second
major producer that China has recently turned to – grow scarce as their growing
season ends. Hope springs eternal.
In any case, US soybean farmers
have taken it in the beans with respect to their livelihood. Those of us
outside the soybean belt may remember that the Trump administration has offered
$3.6B to soybean farmers to offset price drops. This new subsidy will end up being
about 82.5₵ per bushel, covering less than
half of the farmers’ losses. Half a soybean is better than none at all, but as a non-farmer, I cringed when I learned of this announcement. Why? Because industrial ag commodity growers, like soybean farmers, already
receive sizeable government subsidies – about $25B per year for “farm income
stabilization,” Now they’re receiving billions more because the president
initiated a trade war that’s hurting some of his political flock.
Are soybean
farmers upset at the president? Some are, most aren’t. Grant Gebeke, a large
soybean grower in North Dakota, isn’t
happy. “I’m trying to follow and figure out who the winners are in this
tariff war,” Gebeke said. “I know who one of the losers is and that’s us. And
that’s painful.” In addition, he laments that “They [the US and Chinese trade
negotiators] could get together tomorrow and iron this thing all out and I
don’t think we’ll ever get all of our market back.” Just like happened in
1979-81, when President Carter embargoed wheat exports to the Soviet Union. Soybean
farmers have been thrown under the tractor as the president’s tariff war bumbles
along.
Lobsters. Lobsters
are large marine crustaceans. North Atlantic lobsters, Homarus ameicanus, are found off the ocean coasts of New England and Canada. Lobsters are sold and
shipped as living animals. They can live up to 50 years in the wild. The largest
lobster ever caught weighed
44.4 lb. in Nova Scotia. The preferred commercially harvested lobster is much
smaller, weighing 1.25 lbs., aka “a quarter.” The largest producer and exporter
of American lobsters is the state of Maine, which I’ve written about before.
The famed author David Foster
Wallace wrote his “Consider the Lobster” article that was published in Gourmet magazine about the State
Crustacean of Maine. Being Wallace-written, the treatise contains a fair amount
of food for thought, but not about lobsters per
se. He likened these creatures to giant sea insects. Wallace tells about
his attending the 2003 Maine Lobster Festival, an “enormous, pungent, and
extremely well-marketed” affair. Perhaps in finite jest, Wallace called these
benthic denizens of the depths “garbagemen of the sea, eaters of dead stuff.” He
also reminds us that our fondness for lobster meat is recent. During US
Colonial times until into the 1800s lobster was considered low-class food, only
given to poor and institutionalized folks and prison inmates. The inmates only ate
lobster once a week because more often would have been considered cruel and
unusual punishment. My how times change.
For the majority of the essay Wallace
travels way beyond the festival and discusses the “inconvenient” moral issue
directly connected with eating lobster: because each lobster is supposed to be
alive (as shown in the above picture) when you, or the cook, kills it in a
kettle of scalding water. Basically, the lobster’s pain issue boils down to
whether it feels pain when this happens, and how a lobster-eater deals with this
likelihood. The vast majority of lobster eaters attempt to disregard the issue
completely, much to PETA’s chagrin.
But enough lobster philosophizing.
For New England, and especially Maine, lobsters have been a large and growing
business. In 2016, the US “landed” 161.1
million (M) pounds of live lobster. Maine’s 5,400 independent lobster fishermen
alone provided 132.5M lb., worth $540.3M. Both numbers are records. The lobster
industry has experienced significant growth; in the last dozen years the
lobster catch has sustainably increased 76.3%. As mentioned above, the US
exported $128.5M worth of live lobsters to China in 2017. But in 2018 lobster
exports to China have shrunk by 17% so far, due to China’s retaliatory 25%
lobster tariff imposed in July. Similar to soybean growers, some lobstermen are
upset, most apparently are not.
Kristan Porter, the president of the Maine Lobstermen’s Association, has
said the issue of China’s tariffs and Trump’s trade wars “is a long way down
the list for most guys” of things they worry about. From Porter’s perspective
other concerns are more important; including revised regulations that
will increase the cost of lobster bait (herring), the rising temperature of
ocean waters that reduces lobster catches, and stronger protections for
migrating North Atlantic whales that swim in the same waters as lobsters. The reality is that recent times have been wonderful
for the Maine lobster industry, which provides some pluck – others would say
complacency – for the nonchalance regarding tariffs.
“We’ve been kind of spoiled the
last few years,” Porter says. Other lobstermen are concerned because exports to
China during the past 5 years have increased 322%, accounting for much of the
industry’s expansion and added profit. The Chinese tariffs may change this
complacency.
Mark Barlow, owner of Island Seafood, a large business that ships live
Maine lobsters around the world, has a view very different from Kristan
Porter’s. Barlow mentions that as soon as China slapped its 25% tariff on US
lobster exports, I said to my sales team, “China’s dead.” His Chinese customers
confirmed his expectation. “I don’t think there is [a] way to import US
lobster,” one Chinese buyer stated. Barlow believes the Chinese tariff is a
significant blow for Maine. As Barlow put it, “The orangutan in Washington woke
up from a nap and decided to put tariffs on China, and the Chinese stopped
buying [Maine lobster] immediately. We’re getting absolutely slaughtered.”
Trumpian tariffs have thrown lobstermen overboard.
Introducing US tariffs on
thousands of imported goods may ultimately benefit US exporters and citizens,
but right now everyone from Maine lobstermen to Minnesota soybean farmers are
seriously suffering, along with millions of consumers who are paying more for
all kinds of imported goods.
As Thomas
Draxe perceptively stated over 400 years ago, trade is the mother of money. Soybean
and lobster exporters – and virtually every US consumer – now have less money
than they expected due to the president’s myopic, contemptuous, hardball trade
tactics. Too bad we can’t trade him in before 2020.
A Coda Regarding
Nancy. The upcoming election of
a new House Majority Speaker will surely anoint Nancy Pelosi. But the media’s recent
swirl of stories makes it seem that someone else will also be in contention to
challenge her. No other Dem has yet announced his/her candidacy and most
likely won’t. No matter. Sixteen Dems are now on record opposing Ms. Pelosi,
without anyone else to vote for. The vexation of the Dem progressives, who seem
to think their political power transcends their numbers, is based principally
on ageism. The Congressional Progressive Caucus represents about one-third of
the Democratic Caucus. [At last count 4 years ago, there were 697 caucuses in
the House.]
I believe there isn’t anyone else
who should be Speaker. No other Democrat is as qualified, capable or proven as
Ms. Pelosi. Her legendary ability to achieve success was reaffirmed on Nov. 20, when Ms. Pelosi offered Rep. Marcia Fudge, the only other Dem to say she was "interested in considering" a run for Speaker, a subcommittee chairpersonship. This was an offer Rep. Fudge could not say no to; she accepted. Rep. Fudge is now firmly in Ms. Pelosi's camp.
Other than eagerly seeking influence, there are no direct benefits to the circular firing squad approach the Progs now have been using. Their media-centric tactics magnify the chants of a small number of newly-elected Prog Dems, who have negligible substantive power, but do have the media’s focus. Their momentary dramas in hallways, letters or press statements have produced no alternative candidate for the speakership. It’s completely appropriate for multiple Dems to vie for this important job, but the Progs’ candidate-less approach wounds their cause in many voters’ minds. The media’s attempts to make it seem viable simply compound the miscalculation.
Other than eagerly seeking influence, there are no direct benefits to the circular firing squad approach the Progs now have been using. Their media-centric tactics magnify the chants of a small number of newly-elected Prog Dems, who have negligible substantive power, but do have the media’s focus. Their momentary dramas in hallways, letters or press statements have produced no alternative candidate for the speakership. It’s completely appropriate for multiple Dems to vie for this important job, but the Progs’ candidate-less approach wounds their cause in many voters’ minds. The media’s attempts to make it seem viable simply compound the miscalculation.
I offer two suggestions. First to
the Progs; realistically look at the midterm elections results. The Prog
candidates won in House districts that are already blue. The soon-to-be Rep. Alexandria Ocasio-Cortez, a
media-darling, is a sterling example. She deserves her victory. But guess what; if the Dems really aim to
take control of the Senate and the White House 2 years from now, there simply
aren’t enough cobalt blue districts to do it with strongly progressive placards. As a reference, consider the state-wide defeats of dynamic Prog candidates in Florida,
Georgia, and Texas. Going lefty left isn’t yet a viable election strategy
beyond geographically-limited House seats.
Second and as I mentioned on Nov.
11, after winning the Speakership this January Ms. Pelosi should nobly
announce a year from now she’s resigning. The concerns of younger House Dems
about the hoary nature of their current leadership have merit. Even before
January 3, and certainly afterwards, she should work with Dems who represent
all the flavors of Democratic progress (perhaps as many as 233 flavors?), to facilitate
younger Dems’ entry into the hallowed halls of Democratic House leadership.
