Drive for miles past rows and rows of soybeans in much of Arkansas. One out of every three rows used to go to China.
I covered row crop agriculture for the Arkansas Democrat-Gazette many years ago. I remember the president of Riceland Foods, the huge cooperative based in Stuttgart, telling me there was no market for Arkansas' winter wheat crop besides China.
Now we are in a trade war with that country, among others. I am not an economist, though. I have covered politics, not business, for 20 years now. So I called Mervin Jebaraj for an up-to-date assessment I could trust on trade wars. He is director of the Center for Business and Economic Research for the Walton School of Business at the University of Arkansas.
Here is what he told me: There is not just one trade war. Disputes with the European Union and Japan, for instance, still go on. "China is in the headlines now but the others never ended," he said.
Every one of the belligerents know the vulnerabilities of the others. So each retaliates with tariffs accurately targeted to cause maximum political pain.
China's recent decision to stop importing U.S. agricultural goods, for instance, was announced well after planting season. Certainly, U.S. farmers hedged their bets. They did not plant as much as they would have if tensions with China had not been rising. But now the chances this will all be resolved by harvest time is dim.
On a side note, Arkansas weather is not helping. Cold, wet conditions prevailed statewide for much of the growing season.
Beyond agriculture, "there is not a manufacturer in the United States that does not get some of its components from overseas," Jebaraj said.
Any business -- even one run by the Chinese Communist Party -- wants dependable suppliers. The United States was the model for consistency from the end of World War II until now. China is already diversifying its supplies, getting soybeans from Russia, for instance. They are not going to depend upon the United States again to the same extent.
We are causing more pain to the Chinese economy than they are causing to us, but in theory they are better able to withstand it, politically speaking. Neither Jebaraj or I are specialists in Chinese politics. Still, anyone can see Xi Jinping is not facing an election in 2020.
"He is a de facto president for life," Jebaraj said. "Even if he doesn't run past a second term, he does not have to announce that. Before you knew a [Chinese] president was a lame duck in his second term. Now you don't."
The United States used to have the advantage of consistency. It lasted for decades. "No matter how bitter our internal politics were, agreements by previous administrations were respected," he said. "Now trading partners have to wonder if agreements will be good after every four years, maybe eight." U.S. presidents serve four-year terms and are limited to two terms at most.
The cost of the current trade wars add up to about $800 a year per U.S. household, Jebaraj said. "That wipes out the tax cut," he said, referring to the reduction Congress passed in 2017.
The U.S. has enjoyed the longest economic recoveries in our history "but it has also been the slowest,"Jebaraj said. "That means there has been low business investment." Business did not invest in big expansions in capacity because they could keep up with slowly growing demand relatively easily.
So business investment never took off and then trade wars caused a lot of uncertainty. Businesses became even more reluctant to make more investments. The gradual growth and then trade war uncertainty explain why the tax cut did not result in the business investment it was designed to spur, he said.
Jebaraj said more, but I will end there and add my a political point now: Xi will not let an opportunity to humiliate the United States pass, whatever it costs his people. Anyone who thinks China will cave to economic pressure never heard of the "Great Leap Forward." Nor is ego uniquely Chinese. No one who rises to the top of a major world power lacks self-esteem. The winners have other qualities besides that.
Commentary on 08/17/2019