US-China Trade War Update: A Trickle of Soybean and Oil Exports – By Ken Roberts | Forbes

Ken Roberts | Forbes

UD- China Trade

Days before President Trump is expected to back off from his threat to bump up the tariff on some $200 billion in Chinese imports, it is apparent in just-released trade data that China is still trying to punish key industries President Xi Jinping believes will hamper Trump’s re-election efforts.

It is also pretty clear the strategy is NOT working.

This trade war is important stuff, here, that risks plunging the United States economy into recession or tossing China into an accelerated slowdown in growth. Neither is particularly appetizing.    

The United States and China are the world’s two largest economies. The world’s economy has long been dependent on the performance of the United States for signals as to the ease of treacherousness of the path forward. It is increasingly mindful of the ups and downs of China’s.         

Underscoring that, the two all but certainly just set the record for most trade ever between two countries in one year, surpassing the 2014 mark set by the United States and Canada.

Annual trade data, supposed to have been released Feb. 5, was delayed by the government shutdown and will not be released until early March, so I am projecting the total trade between the two based on 11 months of trade data.

As the deadline looms, we seem stuck in a trans-pacific contest to see who will blink.

If Trump backs off, the United States will be hard-pressed to ever go after an ascendant China again. If Xi backs off, it is not just that he would feel weakened.

The real issue is whether China could adapt to playing by WTO rules as a developed economy — without slowing its growth to a more moderate range than has been the case for the last two decades.

So, this is where we are. Trump told the Chinese last fall that the United States would bump up the tariffs on $200 billion in Chinese imports already at 10% to 25% at the end of the year without resolution of the issues the United States had raised with regard to intellectual property and technology transfer, primarily. But that did not occur, and Trump extended the deadline to March 2.

Though it is highly unlikely that United States and China will resolve the key differences delineated by the pending deadline, it is also clear that the president is not getting a great deal of pushback on the home front, either from the lobbying class in the nation’s capital nor the agricultural and energy officials largely in the Midwest and Texas, respectively.

While that gives Trump some rope, it is not good news for Xi, who is probably still trying to get his arms around the notion that a country’s population does not exist to keep its leader happy. Certainly, President Trump is fully aware of that fact, if it was not patently clear when he was but a citizen.

That said, Trump, who railed against what he decried as terrible trade deals in which the United States was entangled while he was running for president, has little to show for all his efforts in this arena through the first two years of his presidency.

The U.S. Mexico Canada Agreement, which modestly improves the current NAFTA treaty, lies dormant in Congress and it is likely to stay that way, perhaps even into next year or longer. That’s because at the moment, the recently election-emboldened Democratic Party, acclimating to having its hands gripping the levers of power in the House of Representatives, doesn’t appear to be in a cooperating mood.

On top of that, the president uncharacteristically is sitting on a just-released report, which was to lay out the case either for or against tariffs on auto imports on dubious national security grounds. I can only speculate on why the president is not releasing the findings. Presumably it is because this is an area, as is the case with steel and aluminum tariffs, where the administration is hearing complaints.

What you can always count on in any negotiation is that the other side does not want to lose. What is all too often forgotten, however, is human nature, human nature that often leaves us willing to lose, willing to spite the other side, just to keep the other side from winning.

Sometimes it is too late to stop the scarring.

Certainly, the auto industry around Greenville, S.C. has been scarred. BMW agreed to shift manufacturing from the southern state to China, where many of the vehicles were already being shipped, that decision was apparently connected to the steel and aluminum tariffs rather than the ongoing U.S.-China trade War – China buys more cars exported from the United States than any other country after Canada.

But U.S exports, in general, to China has been scarred. Exports to China is down by 34% through November of last year, when compared to the same period the previous year that is a huge percentage drop.

U.S. auto exports to China has been scarred. In 2017, China accounted for 20% of all U.S. auto exports. For the month of November, that percentage had fallen to 12%.

The U.S. soybean industry has been scarred. In 2017, U.S. soybean exports to China was 57-percent. This year, that percentage has dropped to 20%, since China shifted its purchases to the world’s second-largest grower, Brazil, in the summer, in retaliation for Trump’s tariffs. In November, that percentage had fallen to 1.3%, dropping China just behind Tunisia in rank. For the year, soybean exports to China are down more than 70%.

The high-flying U.S. oil industry, IF NOT SCARRED then it is well aware of the impact that the trade war is having on the thickness of its wallet. In June, U.S. exports of oil to China totaled a record $1 billion, and China ranked second only to Canada as a purchaser of U.S. oil. In August in the most dramatic expression of Chinese retaliation against U.S. tariffs, that total dropped to zero and remained there for September and October as well.

Just as the trade war has hurt U.S. exporters of soybeans, U.S. exporters in the oil industry and those in the auto industry; so too it has hurt the president’s desire to reduce the U.S. trade deficit with China, which will have set a record in 2018.

That’s because while U.S. exports to China have dropped in soybeans, motor vehicles, oil and in other areas, imports from China continue to grow, buoyed by a strong U.S. economy.

With the release of the delayed U.S. Census Bureau data last week, we can see that China purchased smidgens of soybeans and oil in the month of November.

In November, U.S. oil exports to China totaled $16.5 million, down from $1 billion a few months earlier.

U.S. exports of soybeans totaled just $23.2 million. The previous November the total was $3.47 billion.

U.S. exports of motor vehicles, meanwhile totaled $499 million. That’s down from $998.09 million the previous November.

By now, it must be pretty clear to the reader that the trade war strategy is NOT working.

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