THE TTALK QUOTES
On Global Trade & Investment
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No. 73 of 2016
THURSDAY, DECEMBER 22, 2016
Filed from Portland, Oregon

Click  here for Monday's quote and Brexit and TRQs. 
MR. BRANSTAD GOES TO CHINA

"The United States-Chinese relationship is at a critical point. Ensuring the countries with the two largest economies and the two largest militaries in the world maintain a collaborative and cooperative relationship is needed now more than ever."

Governor Terry Branstad
December 7, 20176
CONTEXT

On December 7, President-elect Trump declared his intention to nominate America's longest serving governor, Governor Terry Branstad of Iowa, as America's next Ambassador to the People's Republic of China. In making the announcement, Mr. Trump said:

"Governor Branstad's decades of experience in public service and long-time relationship with President Xi Jinping and other Chinese leaders make him the ideal choice to serve as America's Ambassador to China. He successfully developed close trade ties with China while serving as chief executive of the Hawkeye State. That experience will serve him well as he represents America's interests and further develops a mutually beneficial relationship with Chinese leadership."

Today's featured quote, of course, is not from the President-elect but from Governor Branstad and specifically from the statement he issued in accepting the appointment. In the operative portion of his statement, Governor Branstad said:

"After long discussion with my family, I am honored and humbled to be nominated to serve as the U.S. Ambassador to China. I also accept President-elect Trump's charge to prioritize collaborative policies that will Make America Great Again."
COMMENT
We're inclined to put our comments on the Branstad appointment into three categories: the signal, agriculture and trade, and all the rest.

The Signal. The announcement of Governor Branstad's appointment came less than a week after the President-elect angered Beijing by accepting a well-planned call from the president of Taiwan, President TSAI Ing-wen. (That issue continues to reverberate as now China wants the U.S. to bar President Tsai from transiting through New York when she visits Guatemala in early January.)

By contrast the appointment of Iowa's governor to be America's top diplomat in China was a gesture of friendship, and it was received as such. LU Kang, a spokesman for China's Foreign Ministry, described Governor Barnstad as "an old friend of the Chinese people," adding that, "[Beijing] is glad to see an old friend take this job."

As Jennifer Jacobs explained to the IowaWatch Connections audience, the phrase is significant. "An old friend of China, that's a term of art," she said. "They - [the Chinese] - don't use that term lightly. It's the highest compliment that the Chinese people could pay Terry Branstad, and that means something."
Of course it is not just that Governor Branstad is a friend of the Chinese people. He is a friend of China's president, XI Jinping. As noted earlier, Governor Branstad is America's longest serving governor, but his 24 years in that position were not all in one long stretch. He was governor from 1983 to 1999, and then again from 2011 to the present.

On a visit to China in 1985, Governor Branstad met Xi Jinping, then an agriculture official with Hebei Province, and invited him to visit Iowa. A few months later, Xi and several of his colleagues went to the Hawkeye State, where they were hosted by Iowa families. Xi Jinping stayed with the Dvorchak Family in Muscatine, Iowa, a small town on the Mississippi across from Illinois. That, so the story goes, was the acorn from which this oak of a relationship has grown.

Agriculture. From time to time agriculture will be eclipsed by other, seemingly much larger issues in the U.S.-China relationship. But it will always be there. Indeed it is hard to overstate the importance of China's demand and potential demand for American food and related products to America's farmers and ranchers.

One could do worse than to listen to people from Iowa to get a feel for that reality. It is a state with 3 million people and 21 million pigs. It's the number one corn producing state in the U.S. and one of the largest soybean producers in the world. And exports - especially a diversity of exports - are a big part of the engine that makes the Iowa economy work. These facts and several others can all be found in a fascinating AgriNews write-up of recent remarks by Bill Northey, the Secretary of Iowa's Department of Agriculture.

We were especially struck by Mr. Northey's comment on the importance of having a diverse as well as a large global market. After noting that the international market for Iowa products is more diverse now than it was in the past, Mr. Northey said, "I believe there is a stability in a large international market that allows us to be able to depend on exports."

That said, one cannot get away from the importance of large buyers, buyers like China. "China is buying 60 percent of all soybeans traded in the world," Mr. Northey said. "if there was a hiccup, that would be really hard on the soybean market."

But you need to turn that around. If America needs China for the soybeans and pork Americans sell to China, then, the logic suggests that China needs America for all the products that Chinese producers sell here. And China has a huge merchandize trade surplus with the United States -- $367 billion in 2015. That number may be overstated, but even if the statisticians could agree on a paired down figure, the number would still be huge.

The Trump Administration owes its electoral success to a combination of the farm states and many of the manufacturing, so-called rust belt states. And it has set itself an enormous challenge. The label on that challenge is China. The trick will be to give China a run for its money where manufacturing is concerned while not just holding on to but growing the Chinese market for products like Iowa's pork and soybeans.

It is not impossible. For years, the American consumer provided the fuel for the engine of the Chinese economy. Now Chinese consumers can do that for themselves.  That is,  they can do it for the Chinese economy, and they can do it for other economies as well. In short, we may be in for a rough ride on trade, but we are not dealing with insoluble problems. To repeat an old saw: trade is not a zero-sum game; not at all.

The Other Issues. Managing the other things, however - the growing territorial tensions, the South China Sea, Taiwan, the sabre rattling (including the dangerous behavior of North Korea) - they are the wild cards in the relationship. And they are likely to be the topics of Ambassador Branstad's most difficult conversations in 2017 and beyond.

Unsought Advice. But this chronicle is about trade, and so we'll come back to trade with our two cents worth on two related issues. President-elect Trump's determination to re-energize American manufacturing is laudable, and we hope it works. We doubt, however, that making China's currency - the value of the RMB - the centerpiece of the argument will do much for the cause. Does the United States really seek a world in which China can get more for less in the U.S., while Americans have to pay more for what they buy from China and the world. The dollar is strong now, and so that danger seems remote, but, to coin a phrase, things change.

Advice for China. Finally, we do not expect the government of China to pay much attention to advice from this quarter, but we'll offer some anyway.
When the U.S. Government takes - or even threatens - actions you don't like, there will be a temptation to "retaliate" against U.S. firms in China. Resist it. The long term interests of both the U.S. and China lie in hosting productive investment. Investors are the golden geese of the global economy. Best to leave them alone.

All of that said, there are some difficult conversations ahead. If they can at least begin as conversations among friends, so much the better.

SOURCES & LINKS
The Governor Accepts is the December 7 press release from the office of Governor Branstad, issued in response to the announcement that he has been tapped to be America's next ambassador to China.

Branstad to China takes to the page of the Trump Transition Team website with the December 7 announcement of the President-elect's intention to nominate Iowa Governor Terry Branstad as America's next Ambassador to China.

Iowa Sets Records is AgriNews interview with Bill Northey, the Secretary of the Iowa Department of Agriculture and Land Stewardship, and it is the source of much of the data on Iowa cited above.

An Old Friend takes you to a China Daily article the announcement that President-elect Trump intends to name Governor Terry Branstad as the next U.S. ambassador to China.

The Branstad Legacy is an audio program from The IowaWatch Connection on Governor Branstad's time as governor, and it includes the comments from Jennifer Jacobs on the significance of Mr. Branstad being considered "an old friend of China."

On the Way to Guatemala is a Shanghaiist story on President Tsai's January travel plans, specifically, her intention of flying to Guatemala via New York.

Tale of a Visit is an article on Xi's 1985 visit to Iowa by Gary Dvorchak, who writes for Real Money, The Street. 

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