The Long-Term Damage Of The Trade War

“US farmers might not regain their market share even if a trade settlement is concluded with China.”  – South China Morning Post

If you have been following the Global Macro Monitor over the past year, you know our thoughts on the trade war.  We have raised the concept of trade hysteresis in several posts, warning U.S. farmers may never get their foreign markets back in China, or even Japan and the other countries in the eleven-member Trans-Pacific Partnership (TPP) after the United States pulled out of the deal.

Hysteresis in the field of economics refers to an event in the economy that persists into the future, even after the factors that led to that event have been removed. – Investopedia

Go no further than a piece in yesterday’s South China Morning Post, which lays out in layman’s terms the concept of “hysteresis” and how it was set in motion by U.S. trade policy.  The term “policy” may be too generous a word as the negotiations have been nothing more than a long series of staccato ejaculation of Tweets in, large part,  to manipulate the stock market higher.

The Kommisars Are In Town

Yes, it’s possible a Soviet-style trade deal may be cut for mostly show, where quotas for say, Chinese imports of U.S. soybeans may be announced by the trade Kommissars but come on, man, U.S. export markets have been irreparably damaged.

Moreover, we seriously doubt that the kind of deal, which has been imminent for the past 20 months, will remove the uncertainty, which is repressing capital spending as companies have no clue about the future of their supply chains.

The only thing that seems to matter is that it gooses the stock market, which probably makes it a sell upon announcement.

Prepare for the “Greatest and Largest Deal Ever.”  Not.

Money Quotes

• US farmers might not regain their market share even if a trade settlement is concluded with China.
• US officials should have known that China would redraw its agricultural supply lines. After all, Chinese people still have to eat, trade war or no trade war, and China relies on food imports, a fact that has come into sharper focus as a consequence of the outbreak of African swine fever.
• In the meantime, the impact of African swine fever has put pressure on pork prices in China. As a result, consumers have been seeking alternative, less-expensive sources of protein. Step forward, New Zealand, which has had a free-trade agreement with China since 2008.
• US farmers might not regain their market share even if a trade settlement is concluded with China.
• China has taken more than half of New Zealand’s beef exports in recent months.
• US cattle farmers could have expected to benefit from this rise in Chinese demand for beef, but for the trade war.
• Step forward Argentina and Brazil. Both countries have supplied China with soybeans that, before the US-China trade war, Beijing would probably have sourced from American farmers. Brazil alone exported a monthly record of 5.16 million tonnes of soybeans in November, with some 94 percent destined for China.
• Trump has noticed:

• Trump’s intervention seems more like an attempt to punish Argentina and Brazil for having the temerity to supply soybeans to China.
• But a resolution of the US-China trade war doesn’t necessarily mean things would go back to the way they were. The trade war and the impact of African swine fever have forced China to rethink. Washington may find Beijing has redrawn China’s agricultural supply lines in indelible ink.   – SCMP