Trade Discussions Still In Limbo

Mar 8, 2019  | 4 min  | Ep4429

The slow pace of trade negotiations between the United States and China continued this week. While both sides have hinted an agreement is close, analysts are beginning to measure the damage the trade war has left in its path.

A study by the Federal Reserve Bank of Atlanta found the tariffs had caused U.S. companies to cut their spending on large equipment by 1.2 percent, or $32.5 billion, last year.

Consumers are estimated to be paying $1.4 billion per month in tariffs on household purchases, and the added duties are costing American businesses an additional $3 billion per month.

Additionally, a stronger American dollar is making U.S. exports more expensive on foreign shores.

The drop in Chinese purchases of American grain, high tech gadgets and other products has helped widen the trade deficit, which hit a record $419 billion in 2018, which is a 10-year high.

On top of a record trade gap with China, the imbalance reached new peaks with Mexico

 at $81 billion, and the European Union at $169 billion. The United States also ran a record surplus last year with South and Central America.

This week, Secretary of State Mike Pompeo, at an appearance before Iowa Future Farmers of America members, reiterated the administration’s commitment to negotiations with China.

Mike Pompeo, United States Secretary of State: "The President concluded, and I think rightly so, that it's time. We need to be serious about that. That we ought to do this in a professional way, engage in deep communication and negotiation with the Chinese about this so we can get to a place where Americans can sell their goods on a fair, simple reciprocal idea that says if you have no tariffs and we'll have none."

 

Across the Pacific, Chinese manufacturers are also feeling the effects of the trade skirmish. GDP growth has slowed to a 30-year low of 6.6 percent as both internal consumption and international exports slowed.

 Sock manufacturer Chen Renyong has idled most of the knitting machines in his factory because of retaliatory U.S.  tariffs. American clothing buyers have switched sources for footwear to other locations in Southeast Asia, avoiding both tariffs and China’s relatively high labor costs.

Chen Renyong, President of Hemaosheng Socks Co. Ltd: ”This has a big impact on us. The impact will get bigger if the trade war between China and the US escalates, mainly, as in the number of the orders, which will greatly affect us.”

 

The lever in the trade dispute may be American soybeans. The U.S. currently sits on nearly a billion bushels of beans from the 2018 crop, which is double the previous record. China had been the number one destination for those soybeans over the last decade, but purchases have slowed to a trickle over the last six months. The Chinese market may have been permanently altered.

Kirk Leeds, CEO, Iowa Soybean Association: “I think the damage from the trade tariffs and the counter tariffs have done long term damage to the US soybean industry, I think it's going to take us a very long time to recapture this market. (edit) Lots of Federal officials are tired of talking about soybeans, but the Chinese know that soybeans are probably their strongest weapon to use to try to persuade this government to move forward on trade.  

 

Later in the week, Ambassador to China Terry Branstad told the Wall Street Journal that a further narrowing of gaps was necessary before Presidents Trump and Xi would meet and that no deal is imminent.

For Market to Market, I’m Peter Tubbs.

 

 

 

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN