Trade Policy

N. Dakota “orphan soybeans” at 236 million bushels

That’s from WaPo. In 2017, the US exported 1.2 billion bushels to China: North Dakota’s orphan soybeans today are nearly 1/5 of total sales to China in 2017… “Lots of guys will be scrambling,” said Joe Ericson, a grower who operates a 5,000-acre farm near Wimbledon. “It’s going to be a struggle. This year might not be as bad because a lot of guys have forward-contracted a lot of this year’s crop already. But if it goes into next year, it could be tough for soybean.” Peterson has about 25 percent of his crop under contract with a buyer and will store the rest. Many farmers in the region have begun dusting off old bins for storage. Others are hoping to build new storage facilities for the overflow, but steel and aluminum tariffs have driven up construction costs. “We’re getting hit by both s...

Guest Contribution: “The New NAFTA”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate. Donald Trump thinks he once again pulled off a smashing victory on October 1, delivering on his oft-repeated campaign promise to terminate NAFTA, “the worst trade deal ever,“ and replace it with something much newer and better. One is tempted to say to oneself, “Let him think that.” The US-Mexico-Canada Agreement may not be an improvement over the status quo, but at least it is an improvement over the end to free trade in North America which he had threatened. By now, a Trump modus operandi has come into view. First you threaten to blow up the world, and ...

You Ain’t Seen Nothing Yet

Taxes announced, proposed, on Chinese imported goods. Or, shoot yourself in the foot edition. Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018. With Vice President Pence’s speech, I’m confident that the Trump administration will push forward in implementing fully the programs of imposing tariffs on China sourced imported goods (while still failing to sanction ZTE, …FFS). What are the likely macro impacts. On output, minor, unless stock markets take a dive. On the other hand, consumers will almost certainly face price increases, either relative or general. Source: Hatzius, et al. “The Trade War: Bigger Numbers, Same Conclusion,” GS 5 Oct 2018. On a separate matter, I am compelled to note several inaccuracies and omissions (!) in Mr. Pence’s panegyric: ...

“So China is now paying us billions of dollars in tariffs”

How does a tariff work? A tariff is a tax on imported goods, so if a Chinese good is sold to an American, the American literally has to pay the tax.The quote above is from Mr. Trump, as recounted in Peter Coy’s “The Real Pain From Trump’s Tariffs Trickles Down to Consumers” in Bloomberg Businessweek; it clearly highlights the fact that either (1) Mr. Trump has no understanding of how tariffs work, or (2) he does understand, and he’s lying. Now it’s true that when the importing country is large relative to the exporting, then in economic terms it’s true the exporting country is losing out by having to sell goods at a lower price than they otherwise would (see graphs in this post). But even then, there’s no guarantee that the burden on exporters is substantial. Who actually ends up footing t...

JP Morgan Chase: “U.S.-China endgame involving 25 percent U.S. tariffs on all Chinese goods in 2019”

That’s according to Bloomberg. With little prospect of a restart for U.S.-China trade talks, JPMorgan Chase & Co. now expects an escalation in tensions that will see higher American tariffs on all Chinese imports, sending the yuan sliding to its weakest against the dollar in more than a decade. “JPMorgan has adopted a new baseline that assumes a U.S.-China endgame involving 25 percent U.S. tariffs on all Chinese goods in 2019,” JPMorgan strategists including John Normand wrote in a note…. “Looser Chinese monetary policy ensures that the U.S. dollar will become an ever-higher yielder versus the renminbi for the rest of the cycle.”… Here is a graphical depiction of the implied path of exchange rates: Figure 1: Trade weighted nominal value of Chinese yuan, 2010=1 (blue, left log scale), b...

Learning from History and Modeling: Chinese Trade Retaliation Choices

An interesting symposium in the 2nd Quarter 2018 issue of Choices, published by the Agricultural and Applied Economics Association, deals with the impact of Chinese trade retaliation aimed against US agricultural exports. Some reading to contemplate this graph by: Source: Slok, “Global markets: US overheating and Treasury supply pushing US rates up. Trade wars and Turkey pulling US rates down,” Deutsche Bank, September, 2018. What Have We Learned from China’s Past Trade Retaliation Strategies? (pp. 1-8)Minghao Li, Wendong Zhang and Chad Hart Theme Overview: U.S.–China Trade Dispute and Potential Impacts on Agriculture (pp. 1-3)Mary A. Marchant and H. Holly Wang Predicting Potential Impacts of China’s Retaliatory Tariffs on the U.S. Farm Sector (pp. 1-6)Yuqing Zheng, Dallas Wood, H. Holly W...

Guest Contribution: “Fall in US Trade Balance, Led by Ag. Exports”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. As of July, the US trade deficit was running worse than a year ago, despite improvement earlier in 2018. A new Census report today suggests: (1) further deterioration of the trade balance in August, and (2) a role for exports of food & feeds which, after rising in the spring, have apparently fallen sharply since June: -6.3 % in July and -9.5 % in August. [Advance Economic Indicators, Sept. 27, 2018, Table 1. U.S. Intl. Trade by End-Use Category]. This is consistent with the story that retaliatory Chinese tariffs against US exports of soybeans and other farm products caused shipments to be moved forw...

“Trade Wars Are Good, and Easy to Win”: Soybean Edition

I am dubious. End-market year soybean stocks at record highs. Source: Slok, “Global markets: US overheating and Treasury supply pushing US rates up. Trade wars and Turkey pulling US rates down,” Deutsche Bank, September, 2018. And those stockpiles are now valued at lowest prices in a decade, down 20% from when Mr. Trump started imposing sanctions. Source: Slok, “Global markets: US overheating and Treasury supply pushing US rates up. Trade wars and Turkey pulling US rates down,” Deutsche Bank, September, 2018. There have been numerous voices commenting on this weblog arguing that US soybean prices will recover during the harvest period in the US when Brazilian soybean sources are exhausted. Thus far, futures prices (for November, etc.) have not exhibited such behavior. Since several studies...

Guest Contribution: “Trump Renews Charges of Chinese Currency Manipulation”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared in Project Syndicate. The US Treasury is due in October to submit its biannual report to Congress on what countries, if any, are manipulating their currencies to gain unfair trade advantage. President Trump has recently resumed the accusations he made during the election campaign that China was manipulating its currency. “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also,” he told Reuters. He is apparently pressuring the Treasury directly in its deliberations. What has changed since April? What has changed since the last Tr...

Who Could’ve Known “Crash Brexit” Would Be Problematic?

In the aftermath of the Salzburg summit, where the Chequers plan was dismissed by the EU, and PM May demanded “respect”, the pound has plunged. Source: TradingEconomics.com. Deutsche Bank (Harvey, et al., “Deep impact: DB forecasts in a crash Brexit”) yesterday lays out why: In our analysis, we calculate that UK growth will be around 4% cumulatively lower than under our baseline scenario by end-2020. The UK will enter a two year recession, with output shrinking -0.3% and -0.6% in 2019 and 2020 respectively. The main contributers to the fall in demand are household consumption, which shrinks around 6% relative to our baseline, and business investment which is 13% lower than our baseline. Net trade is assumed to add a moderate boost to GDP, as while trade falls substantially, imports fall sl...

From the Front Lines of the (Soybean) Wars

Reuters has an interesting article, entitled “Inside China’s strategy in the soybean trade war”. Mu Yan Kui … ticked off a six-part strategy to slash Chinese consumption and tap alternate supplies with little financial pain. Source: barchart.com. …“Many foreign business people and politicians have underestimated the determination of Chinese people to support the government in a trade war,” said Mu, vice chairman of Yihai Kerry, owned by Singapore-based Wilmar International (WLIL.SI). The comments echo a growing confidence within China’s soybean industry and government that the world’s largest pork-producing nation can wean itself off U.S. soy exports – a prospect that would decimate U.S. farmers, upend a 36-year-old trading relationship worth $12.7 billion last year, and radically remap gl...

(Still) Waiting for Recovery in US Soybean Prices (Levels, Relative)

November soybean futures keep on going down. And the US-Brazil spread has proven durable. Source: barchart.com. For those who argued Chinese tariffs would be immaterial to prices because of arbitrage/relabeling (see this post, and associated comments), the following graph is, I think, dispositive, as the gap in US and Brazilian soybean prices has proven very durable (more so than I had expected). One could argue weather/harvesting yield news could (should) affect the level of soybean prices, but should not affect the tariff-induced spread. Lo and behold: Source: Javier Blas. I ask: Are US soybean farmers tired of “winning” yet.

  • 1
  • 2
  • 5