Commentary: Tariff trade war could swamp soy growers when they're down
As America wades into its new trade war, I've been thinking a lot about an interview I had with former Manitoba Premier Dufferin "Duff" Roblin. In the 1960s he spent his political capital to build flood protection for Winnipeg, which disastrously was flooded by the Red River in 1950. Roblin was derided for spending $64 million to build what his critics called "Duff's Ditch" — the kind of diversion that Fargo-Moorhead now wants to build for $2.4 billion. Duff's Ditch has saved some $40 billion.
Paraphrasing Roblin: If a house is worth $100,000 and gets $50,000 in flood damage, and the government kicks in $50,000 for repairs, it is no longer a $100,000 flood. The flood has damaged the reputation and future value of the house. It was a far more prudent investment to protect the house from flooding in the first place.
I think there is an analogy to the reputation lost in a trade war.
By imposing tariffs on China, Canada, or others, President Donald Trump causes or quickly accelerates a trade war that violently rocks the boat. China's predictable countermove is to hit the United States in the political gut — including Trump-leaning Midwest farmers.
Proposed compensation payments are estimated at $1.10 to $1.50 per bushel but the reduction in soybean prices has been $2 a bushel. Farmers' profit margins are already thin or negative.
Trade disruption undermines future value farmers have made have made in their infrastructure — farmland values, the value of railroad tracks, inland terminals, export terminals and all associated enterprises (insurance, machinery, crop protections). Around here, that traffic has been headed west to the Pacific Northwest.
Critics (including some farmers) already are describing the money as a "bailout" or "corporate welfare." Conservative farmers say they don't like it, but they'll have to take it. Critics will quickly compare the amount to what is spent on food programs for the poor.
Some ardent farming Trump supporters are quick to point the People's Republic of China has been ripping off America for decades. After the disastrous "planned" economy of Mao Tse-Tung regime from the 1950s through the 1970s, China has been on a strategic path to build the country up. The PRC invited investment and insisted on Chinese ownership and control of many U.S. corporations. Eyeing the huge market, the many companies agreed to a pay-to-play cost that cost them their intellectual property.
There is talk about how Trump is creating this dust-up at a time when the Chinese economy is vulnerable, but I think about these facts:
• A consulting firm, McKinsey & Co., says 76 percent of China's urban population will be considered middle class by 2022, up from 4 percent in 2000.That's 400 million people — 100 million more than the entire U.S. population. It's a tempting market if you don't give away the store to fill it.
• The Xi Jinping regime isn't going away. As of March 2018 the Chinese parliament approved removing the two-term limit. Most Chinese — fed what the Anne-Marie Brady described as a "steady diet of government-only mass communications, social psychology, and other methods of mass persuasion."
• As we make our defensive moves, China is on the offense. They've been busy developing alternative sources of soybeans, some of them that will be felt for decades. Besides building their own capacity, they are developing infrastructure along the "One Belt and One Road" initiative, connecting China to countries like Ukraine, Russia, Kazakhstan and ports along Africa.
Trump's trade moves may help other parts of the economy, but it will take time to see how high or long the flood of commodities might be. Righting the ship may be good for some American businesses but it will be bad for soybean growers who are being sent overboard. They're being thrown overboard, not with a life raft but a longer snorkel.