THE TTALK QUOTES
On Global Trade & Investment
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The Global Business Dialogue, Inc.
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No. 6 of 2017
WEDNESDAY, FEBRUARY 1, 2017
Filed from Portland, Oregon

Click  here for yesterday's quote from Erin Ennis of the U.S.-China Business Council. 
CHINA AND AMERICAN AGRICULTURE

"China is the third largest agricultural market in the world, behind the United States and the European Union. So, of course, everyone wants to be there."

David Salmonsen
January 27, 2017
CONTEXT
David Salmonsen is the Senior Director of Congressional Relations at the American Farm Bureau Federation, and last Friday he was at the National Press Club talking about China and American agriculture. He did so as part of a GBD panel on China Trade: 5 American Views. 

Mr. Salmonsen has a low key style, and it had the counter-intuitive effect of magnifying the drama in the numbers he quietly enumerated. He won his Washington audience over at the outset with the gentle observation that "Everyday is special this week," referring to the whirlwind start of the Trump administration - much of it dealing with trade. 
 
Though the policy focus may be shifting from TPP to other things, Mr. Salmonsen said, "What drives agriculture ... to engage in this does not change at all, especially with China. ... We're always eager for new markets, always eager for more." That is especially true now, Mr. Salmonsen said, because farm prices are low, back to where they were in 2004 and 2005. 

U.S. Agricultural Exports. Mr. Salmonsen painted a broad brush picture of American farm exports with these numbers.
 
$130 Billion. U.S. agricultural exports last year were about $130 billion. That's down somewhat from the $150 billion of a few years ago. The volumes are about the same but commodity prices have dropped. 

Canada at $21 billion is the top destination for U.S. agricultural exports, followed by: 

China, over $19 billion. With Hong Kong added, Mr. Salmonsen said, it's about $23 billion. Put differently, China and Hong Kong together provide the market for approximately 18 percent of all U.S. agricultural exports. 
 
Mexico at about $18 billion

The EU, $13 billion, and 

Japan, over $11 billion.

About Soybeans. Mr. Salmonsen talked about a number of American products and producers that rely on the Chinese market. For us, the really arresting one was soybeans. Thirty to thirty-five percent of all U.S. soybeans go to China, Mr. Salmonsen said. He added: 

"So when you talk to the people in the mid-West and all the soybean producing states in the South, they always have China on their mind."

Beyond exports and the U.S. agricultural sectors that are doing well in China, Mr. Salmonsen had a lot of good things to say about the broader, in a sense, political context of the U.S.-China relationship as well. The U.S. agricultural community was very pleased when President-elect Trump announced that he would name Iowa Governor Terry Branstad as America's next Ambassador to China. 
 
And there have been other positive developments as well. For example, as Mr. Salmonsen explained: 

"In the summer of 2015, USDA and the Chinese Ministry of Agriculture basically started an agricultural strategic dialogue, where they were getting together, working on agricultural issues, agricultural development projects. We'll see what happens with that in the future." 
 
So far, it is seen as a very positive development. But wait, there is more, some of it not so positive. 

"But you know, with trade you get issues." With that brief sentence, Mr. Salmonsen made the transition to the darker, minor key passages of his China sonata. As he put it: 

"I get asked about issues all the time from farmers, and I say, 'You know, would you rather not have the issues and not have the trade? Or would you rather have the trade with the issues?'"

We assume that, by and large, that's a rhetorical question that he puts to his members. And yet, as his first example illustrated, sometimes the issue means there is no trade. Here are some of the challenges he mentioned for U.S. ag producers frustrated by Chinese policies:

Beef. "The Chinese market has been officially closed to U.S. beef since 2003," when a cow in Washington State was determined to have died from BSE. For most countries, the issue was put to rest years ago, especially after the World Animal Health Organization listed the United States as a minimal risk country for BSE back in 2007. In China, however, the issue lives on, notwithstanding China's assurances that the Chinese market would soon be open to U.S. beef. 

Poultry. There were problems with avian influenza a few years ago, but only in a few U.S. states. "China shut down all of our poultry imports back in 2015," Mr. Salmonsen said. "Internationally," he added, "You're supposed to regionalize that, not shut down a whole country." 

Biotechnology. "We've got issues with the Chinese approval process," for chemicals used in agriculture, Mr. Salmonsen said. 

Subsidies. It may be winding down, but China has been subsidizing a number of key products, including corn, wheat, rice, and cotton. It is serious enough that the U.S. has brought cases against China in the WTO on the issue.

Tariff-Rate Quotas. There is also a WTO case challenging how China has been administering TRQs. 

Ethanol and Dried Distillers Grain. The U.S. isn't the only one using trade remedies. China has slapped anti-dumping duties on both of these products from the U.S.
COMMENT
In short, Mr. Salmonsen did at least two things during his time at the lectern last Friday afternoon. More, actually, but the two big ones were, one, spelling out just how very important the Chinese market is to American farmers and, two, illustrating the kinds of issues that encumber that very important trade. 

We have left out a lot. We haven't mentioned, for example, either Mr. Salmonsen's comments on the importance of infrastructure - roads and ports - to trade; nor have we said anything about the competition that threatens America's place in the Chinese market. That competition gets a little tougher whenever China signs another free-trade agreement with a third country. For those and other elements of his talk, you will want to listen to the whole thing. 

What is Ahead? The other major element of his talk that we have not shared here, at least not yet, was the series of questions he raised about the future. Here they are: 

What impact will America's withdrawal from TPP have on the U.S.-China relationship? 
 
Will future measures adopted by the U.S. Government to benefit manufacturing, for example, come at the expense of American agriculture? Elaborating on that Mr. Salmonsen commented, "Something about agriculture just seems to invite retaliation, even if agriculture has nothing to do with the issue.

What about the U.S. Government's overtures to Taiwan?

Will the rise of the dollar complicate the U.S.-China relationship? (It won't help U.S. exports.) 

What weight should we give to President Xi Jinping's Davos speech and his view of himself as a leader on global trade? 

***

Put aside for a moment the issue of the balance of trade between the United States and China, the fact that China regularly runs large surpluses in her trade with the United States. Implicitly, Mr. Salmonsen made it very clear that - at least in agriculture - and agriculture is important - America needs the Chinese market. 
 
(America's reliance on Chinese consumers might have been underscored even more boldly had there been someone at last Friday's event whose sales are critical to the health of U.S. companies, even if the products they sell in China are largely made abroad.) 

In any event it is a delusion to think that America is doing all the buying, thus making China the dependent partner in the commercial relationship. That's not the case. China and the United States have created for themselves an interdependence which, in some respects, is as abhorrent to each as it is beneficial to both. 
 
Whether that was by design or accident doesn't matter now. Somehow they have got to manage the commercial relationship in ways that maintain its benefits for the foreseeable future - and they have to do that despite their growing rivalry on the world stage. 
 
Saying that the U.S. and China "have got to" do something is, of course, is merely an expression. The relationship will change and could unravel completely. The best hope any of us have for avoiding the economic catastrophe of a breakdown is a firm appreciation in both Beijing and Washington of just how vital the relationship is.
SOURCES & LINKS
Agriculture: The China Market is a link to the MP3 file with David Salmonsen's presentation from last Friday's GBD event. This was the source for today's quote.

www.gbdinc.org takes you to the Welcome page of the Global Business Dialogue website. Here you will find links to MP3 recordings for each segment of last Friday's, January 27, China event.

Ag Trade With China is a link to USDA information on this topic.

Soybean, Minnesota takes you to graphs on soybean and other exports published by the Minnesota Department of Agriculture.

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