Trump’s China Rhetoric and Our Agricultural Commodities

Over the last three weeks I have been speaking for BDO Canada at nine different locations across Ontario.  I was talking about politics, trade and the grain markets all mixed together.  With the election of President elect Donald Trump there was much to talk about.  Of course, he in addition to being a businessman has been a professional entertainer over the last few years.  That alone has added a lot of pizzazz to the narrative within American political culture this year.  How this will affect our grain markets will likely truly be seen post January 20, 2017.

The story of 2017 is President-elect Donald Trump.  From a Canadian perspective, we always know that our American friends dominate this part of the world.  We might be the American’s biggest trading partner, but at the end of the day we always know that our American friends get what they want.  Successive Canadian Prime Ministers have always pivoted on that point, deferring to the Americans throughout our history.  It’s the best way to coexist with our American friends.

President Elect Trump has said a lot of things.  Much of that has to do with China, calling them a currency manipulator.  He also tweeted out before the election, that the concept of global warming was created by and for the Chinese in order to make US manufacturing noncompetitive.  He even took a phone call from the President of Taiwan and openly questioned the 40-year American policy of “One China”.  He is certainly controversial in many circles and his talk about China has made a lot of people nervous, including many Canadians.

During my speaking tour last week I talked about how this sabre rattling over China by President-elect Trump can’t be good for agricultural commodity exports to China.  In fact, I surmised that if the confrontation between President elect Trump and China reached a crescendo, there might even be tariffs of up to 45% put on Chinese goods.  That is something President-elect Trump talked about during the campaign.  I felt China would likely fight back under the WTO and the canceling of some soybeans contracts might be a real vehicle to fight back.  Of course, it’s all-theoretical in front of the inauguration on January 20th.

It is complicated and will likely get more so depending on what the new American administration does.  We all know that China has an insatiable appetite for agricultural commodities and none of us especially in Canadian farm country want that change.  So I read with interest, Chris Clayton’s column this week, “USTR Brings New Charges Against China Over Imports for Corn, Wheat and Rice”.  In his piece, Chris writes that the current Obama administration is pushing the trade case that China is not upholding its import obligations under the WTO for corn wheat and rice imports from the US.  The bottom line from Chris is China has effectively stopped importing cheaper global commodities of corn, wheat and rice because it is pouring billions of dollars to spur higher domestic production of those crops.  Chris writes an excellent piece, I advise everybody to read it.

If you think about it real hard it almost looks like the Obama administration is acting somewhat like a new Trump administration would be doing against China, albeit through the WTO.  Mr. Trump has said  “China is killing us on trade”.  You can make an argument that is exactly what the Obama administration is saying with corn, wheat and rice.

It is an interesting paradox especially as the inauguration of Mr. Trump gets closer.  During my speaking tour I made the distinction that the country with the richest economy and the biggest military usually dictates the terms of any trade agreement.  They also usually dictate the terms of any trade dispute.  In fact, the WTO has been the best place for smaller countries because of that last point, being able to go to a trade dispute panel.  Canada did that over the country of origin labeling of livestock and won.  However, in this latest case you have the world’s richest economy with the biggest military against the biggest growing economy and a formidable military in a far-off Asian world.  It has the potential to be some really big news.

It also has the potential to become very messy.  I was asked many times over the last three weeks during the tour about Canadian soybean sales being affected by this.  I replied by saying I highly doubt it, but I was more concerned about soybean futures prices being affected by a sudden change in Chinese buying habits of American soybeans.  I hoped that would not happen.

Of course I don’t know what President Elect Trump will tweet next and I don’t know if he sees all those agricultural commodities going to China.  I would hope he’d continue the Obama initiative to press China at WTO.  I would hope he’d lower his rhetoric about all else China.  With commodities markets moribund, soybeans have been a bit of a star.  We want that to continue.  Pressing the right Chinese buttons will help.  Pushing the wrong Chinese buttons is simply so unnecessary.