
When Steve Bannon was still advising President Trump, he advocated a traditional form of economic nationalism. The goal was to boost manufacturing in America and reduce the trade deficit. One traditional argument against US protectionism is that it would damage American farmers, an important export sector.
In the past two years, the Trump administration has moved increasingly far from that vision, promoting policies tailor made to increase the trade deficit and further squeeze manufacturing, such as a massive increase in the budget deficit.
Now Bloomberg has an article claiming that Trump officials have almost entirely given up on the mercantilist agenda, and indeed are actively encouraging China to put tariffs on US manufactured goods, with the goal of helping farmers:
China is considering a U.S. request to shift some tariffs on key agricultural goods to other products so the Trump administration can sell any eventual trade deal as a win for farmers ahead of the 2020 election, people familiar with the situation said.
The step would involve China moving retaliatory duties it imposed starting last July on $50 billion worth of U.S. goods to non-agricultural imports, said the people, who asked not to be identified because the discussions were private.
But that’s not all. Another proposal would hurt our Rust Belt even more:
Another person said China would consider shifting the tariffs to make it easier to meet a proposal to buy an additional $30 billion a year more of U.S. agricultural goods on top of pre-trade war levels as part of a final deal. . . . Under the proposed agreement, China would commit by 2025 to buy more U.S. commodities, including soybeans and energy products, and allow 100 percent foreign ownership for U.S. companies operating in China as a binding pledge that can trigger retaliation from the U.S. if left unfulfilled, people familiar with the situation said earlier this month.
This is breathtaking. It’s not enough to switch tariffs from farm products to manufactured goods; the Trump administration also wants to encourage the Chinese to buy more US farm products than ever before, which will cause China to send even more manufactured goods to America. Any policy that encourages the export of farm products also encourages the import of manufactured goods. (There’s a reason they call it “trade”.)
And then to pour even more salt on the wound, the administration is trying to make it easier for US firms to invest in China. Recall that two years ago the new nationalists were up in arms about all the factories that were closing down in the Rust Belt and moving to China. Why does the Trump Administration propose making it easier for US firms to outsource jobs?
Of course I’m being a bit sarcastic here. More seriously, I’d tend to discount the Chinese promises to buy more commodities. If that occurs, it will merely shift our exports around, not increase total commodity exports. Commodities are “fungible”, and if one country buys more of our soybeans, then our soybean exports to other markets will be displaced by exports from Brazil and Argentina. But if the Trump administration is placated by meaningless symbolic gestures, then that’s a good thing. And a Chinese agreement to allow 100% foreign-owned investments would also be a good thing, as it will make China a stronger and more powerful country. That’s what the American nationalists want, right?
I wonder if they even realize what is happening.
READER COMMENTS
Jon Murphy
Apr 15 2019 at 3:31pm
Wow. Great stuff. I hadn’t seen the request to shift tariffs to manufactured goods from ag. That really is breathtaking
Alan Goldhammer
Apr 15 2019 at 5:39pm
All the big wheat growing states are reliably Republian. Of the major soybean producers it’s maybe 60-40 and probably the same with corn. However, when one looks at the demographics of some of the farm states, Minnesota and Illinois are still reliably Democratic. If manufacturing is adversely impacted, Ohio could flip against Trump and Pennsylvania already appears lost based on the mid-terms. Only Wisconsin might still be up in the air here. If this is a 2020 political strategy it is a very poor one!!
Scott Sumner
Apr 15 2019 at 6:05pm
Alan, Whoever wins Wisconsin will likely win the election. It’s that important.
Alan Goldhammer
Apr 16 2019 at 8:20am
Scott – I think Florida is far more important than Wisconsin given the number of electoral votes. There are likely to be other very close state results as well that could tilt things.
I’ll have to look up to see what the soybean acreage is in Wisconsin but one of their main ag products is dairy and I don’t think there is an export market in China for these.
Scott Sumner
Apr 16 2019 at 1:59pm
I believe there’s a trade dispute with Canada on dairy, but am not certain. The Dems can win without Florida, but probably not without Wisconsin.
Ahmed Fares
Apr 15 2019 at 6:08pm
Reuter’s headline: Exclusive: EU tariffs to target 20 billion euros of U.S. imports – diplomats
We find out this Wednesday what those tariffs will target. I suspect it will be the US agricultural sector which is why the US wants relief on that front. “Tariff man” probably didn’t think this through when he targeted Airbus subsidies. Meanwhile, Boeing airplanes keep falling from the sky.
Jeffrey Craig
Apr 18 2019 at 2:04am
Hello Scott,
First I’d like to say I enjoyed your article post, it certainly puts into perspective the shortcomings and disorganized nature of the United States strategic approach (or lack thereof) towards this whole “trade war”. Secondly, I’d like to ask what do you think this means for US import export policy and the manufacturing sector (consumer goods, electronics, hi tech, transport equipment, machinery, engineering & metal goods, intermediates, and chemicals & pharma) moving forward? If this were to go through I think that this strategy combined with the CFIUS inward investment restrictions, controls on exports, and battles with the EU and Japan, is simply getting out of hand.
Regards,
JC
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