Ever Given Owners Make New Offer To Suez Canal Authority
By Yusri Mohamed (Reuters) The owners of a giant container ship that blocked the Suez Canal in March have made a new offer in a compensation dispute with the canal...
By Lori Ann LaRocco – Since the first tariff threats tweeted by United States President Donald Trump, the global markets have become an involuntary spectator and sometimes unwilling participant in the political reality show known as trade negotiations. For the first time in history, the veil of trade talks was ripped off and made public. Tweets replaced traditional press releases, and the global markets were tossed into the turbulent waters of discussions left with no preserver to decipher the rhetoric. The uncertainty created by the 280-character tweets of threats, chest-thumping declarations of “winning,” as well as the numerous promises of “good faith” purchases by the Chinese, have been the source of the wild swings in the global market. The intensity of rhetoric between the two countries has intentionally clouded and masked the reality of discussions. But there is one barometer of truth that can blast through this bluster: the flow of trade.
Global trade is agnostic and does not play favorites. Just like plumbing, which directs the flow of water, trade moves through a series of trade routes. The delicate balance of supply and demand is the engine moving the flow of product and commodities. Trade agreements have been the facilitators in the expansion and interconnectedness of the world. Tariffs, on the other hand, have acted as either a stopper blocking the flow of trade into a specific country or an elbow pipe diverting the flow away.
You don’t need to look any further than at the ports to find this truth. The record frontloading of Chinese exports into the United States told the story of fear. The headlines of the record volumes trumped the alarming trend of the precipitous drop in U.S. exports to China. This outcome was a silent, dirty secret that only those who followed maritime knew. There would be no tweets on this very real development.
For the last eleven months, U.S. exports to China out of the country’s largest port, the Port of Los Angeles, have been down. China is the port’s number one customer. To show you the enormity of China versus other U.S. Asian trading partners, Gene Seroka, executive director of the Port of Los Angeles explained, “It takes seven Vietnams to equal one China.”
Actions speak louder than words. If the Chinese were serious in trade talks, exports would not have fallen off the way they did. Much to the arrogance of U.S. politicians, the United States was easily replaced. China stopped buying U.S. ag products and commodities like LNG because it had alternatives. Where did the flow of trade go? To other countries like Brazil and Russia. The expansion in the flow of trade was a part of Chinese President Xi Jinping’s persistence in his pursuit of the countries goals set forth in its Belt Road Initiative and China 2025.
One of the biggest losers in this trade war has been the U.S. farmer, a member of President Trump’s loyal base. Ag purchases were never a problem between the two countries before the trade war became a pawn in negotiation. A shipment of soybeans was hailed as a small victory, but if you looked at the larger trade picture the farmer is still in the hole.
Americans were told by President Trump China needed the nation’s soybeans because of the crop’s superior quality. But the flow of trade again proved otherwise. China was able to replace much of the 2018 crop with that of other countries like Brazil and Canada. “There is no difference between the Canadian soybean and North Dakota soybean,” said Simon Wilson, who was executive director of the North Dakota Trade Office at that time.
It was a boom year for the Canadian soybean farmer in 2018. Canadian soybean exports to China rose 80 percent to nearly 3.6 million tons in 2018 compared to 2017. “We’ve gone from a third of our exports going to China to over 60 percent in 2018,” said Ron Davidson, executive director of Soy Canada.
Trade has also proved the notion of China’s intent in these negotiations. On July 25, just six days before Treasury Secretary Mnuchin and U.S. Trade Representative Lighthizer met in Shanghai for another round of trade talks, the Chinese Customs Administration started allowing soybean imports from all parts of Russia, expanding from five regions in eastern Russia near the border of China. They also announced that Chinese farmers were going to Russia to grow soybeans. In 2018, China imported more than 800,000 tons—an increase of 64.7 percent from Russia. These deals would further alter the flow of trade and shed light on China’s intentions of broadening its soybean production base. After this soybean expansion in Russia, it came as no surprise when, after the follow-up meeting between trade delegations from the United States and China, the Chinese indicated they were in this war for the long-term.
Now the world is waiting on details on the much-anticipated Phase One of the trade deal between the United States and China. But once the details are announced, the deal needs to be compared to the historic flow of trade, to see if this really is a win for the United States. President Trump announced China would pledge to purchase between $40 billion and $50 billion in agriculture goods. The number was hailed as historic, and the President said the farmers would need to buy more land and John Deere’s to meet the demand. But let’s put this claim to the test of trade.
Secretary Mnuchin explained the $40 billion to $50 billion in agriculture purchases would be made over a two-year period. In order to see if this deal really is a “win,” you need to go back to the trade data and see what the Chinese were buying in agriculture products in a two-year period before the trade war. According to the Farm Bureau, in 2016 China made $25,459,000 in agriculture buys; in 2017, $24,348,000. Those two years combined totaled $49.8 billion. So, the new deal that was announced would get the agriculture community back to where it once was if China purchased on the upper end of the range. If it’s below- the ag business community will be at a loss.
But the sad reality is China does not need as much soybeans as it did two years ago. Why? The African Swine Fever. China’s hog population has been decimated. Fewer hogs mean less need for soybeans for feed and other ag business products. You can see this pullback in soybean purchases from Brazil in 2019.
So, no matter how much “winning” is telegraphed in the future on the U.S.-China trade deal, the reality rests in the flow of trade. Container’s don’t lie.
Lori Ann LaRocco is the author of “Trade War Containers Don’t Lie: Navigating the Bluster” (Marine Money Nov. 13, 2019) as well as the “Dynasties of the Sea” book series, “Opportunity Knocking”, “Thriving in the New Economy” and is the senior editor of guests at CNBC.
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