Trump’s supposed deal with China, we now know, doesn’t exist, as Trump has now basically admitted on Twitter:
The negotiations with China have already started. Unless extended, they will end 90 days from the date of our wonderful and very warm dinner with President Xi in Argentina. Bob Lighthizer will be working closely with Steve Mnuchin, Larry Kudlow, Wilbur Ross and Peter Navarro…..
— Donald J. Trump (@realDonaldTrump) December 4, 2018
……on seeing whether or not a REAL deal with China is actually possible. If it is, we will get it done. China is supposed to start buying Agricultural product and more immediately. President Xi and I want this deal to happen, and it probably will. But if not remember,……
— Donald J. Trump (@realDonaldTrump) December 4, 2018
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
So, as it turned out, there was no “real” deal, just an imaginary deal that Trump wanted to brag about, and in fact, we are right where we have been for the last two years: negotiating. We are also right back where we are with regards to Midwestern farms: losing billions of dollars.
A new report from one Midwestern state, Nebraska, shows just how much damage Trump’s trade war with China has already done, and, will continue to keep doing if something isn’t changed fast:
Retaliatory tariffs triggered by U.S. steel and aluminum tariffs imposed by the Trump administration have led to between $700 million and $1 billion in lost farm income in Nebraska this year, according to a report released Monday by the Nebraska Farm Bureau.
Additional costs include between $164 million and $242 million in lost labor income, along with the loss of 4,100 to 6,000 jobs, the economic analysis stated.
“This report provides a clear picture of how much we’ve lost due to those tariffs and the need to improve our trade relations,” Nebraska Farm Bureau President Steve Nelson said.
“The total loss in Nebraska farm revenues due to the retaliatory tariffs ranges from $695 million to $1.026 billion so far in 2018,” Jay Rempe, Nebraska Farm Bureau senior economist and co-author of the new report, stated.
“That’s roughly 11 to 16 percent of the export values of Nebraska agricultural goods in 2017.”
The total loss to the broader Nebraska economy was estimated as high as $1.2 billion. That, Rempe said, is “a significant hit to our state’s economy.”
Nebraska is not alone, and Trump’s trade war may have done irreversible damage. The retaliatory tariffs that have hit the agricultural sector the hardest have been those imposed by China on American soybeans, and that sector may never come back.
China is by far the largest buyer of North Dakota soybeans. And they have stopped buying:
“Now that China isn’t buying any U.S. beans or very little of it, it’s all backing up — especially in the Dakotas, where they’ve really expanded soybean acres over the years,” said Terry Reilly, a senior commodity analyst at Futures International in Chicago.
And the fact that the North Dakota soybean market has lost its main buyer has caused prices to plummet:
The commodity has fallen about 17 percent in price on the decline in the soybean futures market since China announced the tariff. But because Midwest states are more diversified in terms of customers, the basis widening tends to be less pronounced than in the Dakotas.
On Monday, Arthur Cos in the Arthur, North Dakota, area had a cash bid for soybeans of $7.03 per bushel, according to data on AgWeb.com. That was 89 cents per bushel below, or about 11 percent less than, what Ramsey Grain in Rochester, Illinois, was paying for the commodity.
All told, for North Dakota, Trump’s trade war has caused soybean prices to plummet almost 30%.
It’s a similar story in other states, like Michigan, where soybean farmers have seen a 20% slide in prices in 5 months.
Keenan, who helps run his 114-year-old family farm, Keenan Farms, said that farmers are already seeing lower soybean prices.
The value of contracts for soybeans on May 29 was $10.60, which has declined to $8.48 as of 9 a.m. on Thursday, Oct. 25 – a 20 percent decline.
And in Illinois:
Gall has also noticed the changes in the soybean market, prompting him to try to forward-price part of his crop shares this past July in an unsuccessful effort to assuage the effects of the tariffs. He lost 20 percent of his income this year due to the tariff.
And in Iowa:
Soybean prices last week fell to $7.79 per bushel, according to a Bloomberg report, the lowest in years.
“It’s been a long time since we’ve seen a 7 in front of beans for a price,” said Robb Ewoldt, whose Scott County farm in Eastern Iowa includes soybeans, corn and cattle. “That’s really scary when our break-even is $9” per bushel.
“That will affect our bottom line,” he said. That price “is not sustainable. I cannot continue to do that if I sold today.”
And in Ohio:
It has affected soybean demand almost every place where soybeans are farmed. The latest federal data, through mid-October, shows American soybean sales to China have declined by 94 percent from last year’s harvest. The result of this precipitous fall in demand for U.S soybeans has not just resulted in prices that have fallen, it has also resulted in millions of bushels of harvested soybeans being placed in storage instead of sold on the market.
Mr. Karel, the general manager of the Arthur Companies, which operates six grain elevators in eastern North Dakota, has started to pile one million bushels of soybeans on a clear patch of ground behind some of his grain silos. The big mound of yellowish-white beans, already one of the taller hills in this flat part of the world, will then be covered with tarps.
Some analysts predict China will be forced to buy more American beans after it exhausts other sources. Others are hopeful that China and the United States will reach a deal to remove the tariffs.
But waiting carries risks. Soybeans can spoil, and Brazil harvests its crop in the spring, creating fresh competition for American beans. “Hope is unfortunately a terrible marketing plan,” said Nancy Johnson, executive director of the North Dakota Soybean Growers Association.
Now, news has come out that China is developing other sources for the soybeans they import every year. It’s highly unlikely that China would forsake those new sources and resume importing the same amount of soybeans grown by American farmers, even if Trump were to nix the tariffs he imposed in the immediate future. The U.S. soybean export market to China could be gone forever.
Five years ago, Beijing temporarily stopped accepting shipments of genetically modified American corn, another important animal feed, prompting Chinese farmers to buy other crops like sorghum and barley. Chinese demand for US corn never fully recovered, according to Pay.
American soybean farmers have spoken out repeatedly about the threat to their livelihood from the trade war.
Paul Burke, senior director of the US Soybean Export Council in Shanghai, said he thinks the Chinese government is trying “to minimize the import of any US soybeans” with its plan. He expects Chinese demand for American soybeans to fall if the proposals are implemented.
Already, farmers have started to prepare for the possibility that China demand never returns for U.S. soybeans, switching to other crops instead.
But Thomas and many farmers like him plan to return to the old U.S. farm belt staples in 2019: corn and wheat. The change will reverse a trend that saw U.S. farmers plant more acreage this year with soybeans than corn for the first time in 35 years.
The expected shift to other grains comes as farmers struggle to sell the soybean crop because of President Donald Trump’s trade war with China. China typically buys 60 percent of U.S. soybean exports but has bought almost none for months due to the trade war, pushing prices to a decade low.
Thomas plans to plant more wheat next year, hoping he can earn more by decreasing his reliance on the crop dependent on Chinese demand.
Soybean prices are “kicking our butts,” said Thomas.
The worst part about this is that it was all completely unnecessary and based on the fact that Donald Trump has no idea how trade works, and the GOP leadership has known full well that his idea for a trade war was monumentally stupid, but they have refused to stop it.
Donald Trump has ranted over and over again about the trade deficit. Pick a MAGA rally, and you will see him complain about the trade deficit with China or the European Union.
Here’s but one of many examples:
We had an $817 billion dollar trade deficit among all countries over the last number of years. Think of it, per year, per year, $817 billion. That’s a year. Do you think they’re good trade deals? Oh, wonderful deal, whoever negotiated those deals.
Here’s the thing, though, Donald Trump has no idea what he is talking about when it comes to trade. To quote James Mattis, he has a fifth grader’s understanding of things.
The United States has a trade deficit because the United States is the wealthiest country in the world. We use that wealth to buy stuff. The trade deficit exists because we buy more than other countries buy. Bringing down the trade deficit would be an indication that we are getting less wealthy with relation to the rest of the world. To further betray his complete lack of knowledge about a subject he has made a defining issue of his Presidency is this completely ridiculous statement from that same rally:
You know, if I get the trade deficits down they never tell you this, if I get the trade deficits down, bring them down. If I bring the trade deficits down, we could pick up three and four points in GDP. Nobody says that, nobody says that.
Do you know why nobody says that? Because it is not remotely true. Here is what people who actually know about economics say:
As Milton Friedman explained back in the 1970s (italics added):
In the international trade area, the language is almost always about how we must export, and what’s really good is an industry that produces exports, and if we buy from abroad and import, that’s bad. But surely that’s upside-down. What we send abroad, we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad, are goods and services not available to us. On the other hand, the goods and services we import, they provide us with TV sets we can watch, with automobiles we can drive, with all sorts of nice things for us to use.
The gain from foreign trade is what we import. What we export is a cost of getting those imports. And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.
This carries over to the terminology we use. When people talk about a favorable balance of trade, what is that term taken to mean? It’s taken to mean that we export more than we import. But from the point of our well-being, that’s an unfavorable balance. That means we’re sending out more goods and getting fewer in. Each of you in your private household would know better than that. You don’t regard it as a favorable balance when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.
Trade deficits are not a bad thing. They simply mean we are getting more stuff by sending out less stuff. They are a sign of a wealthy country.
The other ridiculous aspect of all of this is that Donald Trump’s proposed solution to the non-existent problem of trade deficits is a trade war that will do nothing about the trade deficit. All it will do is reduce the amount of overall trade. We may import less, but we will also export less. In fact, so far, Trump’s trade war has only increased the trade deficit he keeps griping about.
New data out Wednesday showed the U.S. trade deficit in July widening at its fastest rate since 2015 as monthly deficits with China and the European Union both hit new records. In the year so far, the U.S.’s overall goods and services deficit is up by $22 billion, or 7 percent, versus the same period last year.
So, Trump’s trade war is actually widening the trade deficit he wants to decrease (for no good reason). And, back to his comment about increasing GDP: it is set to do the exact opposite. Because the one thing that trade wars do is reduce the amount of overall trade, which is not good for any economy involved in the trade war.
Andrew Hunter of Capital Economics said the trade data released on Wednesday indicated that after boosting GDP figures in the second quarter, net exports would subtract from it in the second half. In the third quarter, he predicted, net trade would subtract more than a percentage point from GDP growth while the recent surge in the dollar suggested that trade could be a “modest drag” in the fourth quarter too, even before the impact of tariffs starts to take hold.
Not only is the trade war going to reduce GDP, it is also causing inflation.
Steel prices are up more than 40 percent since Trump said on March 1 that he planned to impose a 25 percent tariff on steel imports and a 10 percent levy on aluminum. That is a significant increase that has yet to be passed through to consumers. But it will, and when that happens, potential risks to both the stock market and the economy increase dramatically.
As steel prices rise, it makes major appliances, machinery, trucks and cars, and construction more expensive. Guess what that does to the price of eggs, bacon, milk, orange juice and coffee? Aluminum is in everything from transportation to packaging to cooking utensils. When steel and aluminum prices rise, so too do the prices of refrigerators, dishwashers, stoves — and the cost of your lunch.
And that inflation is eroding any minimal gains that are being made in wages.
Prices rose at their highest clip since 2012 over the past year, the Labor Department reported Thursday.
The 2.9 percent inflation for the 12-month period ending in June is a sign of a growing economy, but it’s also a painful development for workers, whose tepid wage gains have failed to keep pace with the rising prices.
The cost of food, shelter and gas have all risen significantly in the past year. Gas skyrocketed more than 24 percent, rent for a primary residence jumped 3.6 percent and meals at restaurants and cafeterias rose 2.8 percent.
Prices have risen roughly at the same rate as wages, erasing any gains workers may have hoped to realize via bigger paychecks.
Not to mention the damage the trade war has already done to farmers, necessitating an expensive taxpayer bailout.
The Trump Administration has announced a multi-billion dollar aid package for US farmers.
It is being seen as an admission that Americans are being hurt by the president’s protectionist policies.
What’s even more exasperating about all of this is that GOP leadership knew how stupid Trump’s trade war idea was to begin with.
Here’s Kevin McCarthy, Republican House Majority Leader, speaking in December of 2016 about the subject:
“I don’t want to get into some type of trade war,” McCarthy said.
“I think there are other ways to achieve what the president-elect is talking about,” McCarthy said, “but the only way you can do any of this is you’ve got to do tax reform. And that’s why I think that will be a cornerstone of what we do.”
“Tax cuts and deregulation will make the American economy great again, but tariffs and trade wars will make it tank again,” he continued.
Here’s Paul Ryan, in March of 2018:
“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan.”
Here’s Mitch McConnell, on June 3, 2018:
“I don’t think anything good will come out of a trade war,” McConnell said during an appearance Friday before Greater Louisville Inc., the metro chamber of commerce. “And I hope we pull back from the brink here. Because these tariffs will not be good for the economy.”
So, these guys know the truth about Trump’s trade war. Why aren’t they doing anything about it? The constitution gave Congress the power over tariffs, not the President.
Now, on tariffs the Constitution is crystal clear, stating, “The Congress shall have the Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
Congress is a co-equal branch of government. They should not be allowing a moron President to be usurping one of their duties in a manner that is detrimental to the country.
Yet, here is Mitch McConnell, on June 6, 2018, 3 days after he said tariffs will not be good for the economy, shooting down an attempt to reign in our moron President:
Senate Majority Leader Mitch McConnell (R-Ky.) signaled on Wednesday that he will not support legislation reining in President Trump‘s tariff authority and that the president will not sign such a bill.
“Yeah, I don’t think we need to be trying to rein in the president through legislation. No. 1, it would be an exercise in futility because he wouldn’t sign it,” McConnell told SiriusXM when asked if he opposed the bill.
McConnell was asked about legislation, spearheaded by GOP Sen. Bob Corker (Tenn.), that would require Trump to get congressional approval for any tariffs invoked under the national security sections of the trade law, known as Section 232.
What good is GOP leadership? They simply refuse to stand up to Donald Trump. And states like Nebraska are paying the price.