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DFP-RonSmith-UTEconomists.jpg Ron Smith
University of Tennessee agriculture economists Aaron Smith, left, and Andrew Muhammad say U.S./China trade war could mean long-term impact on commodity markets.

Trade war more politics than economics

First in a three-part series: Trade war repercussions

As farmers across the country harvest 2019 crops, they pray that yields will be enough above average to offset commodity markets that languish below what anyone would consider a profitable price.

At the same time, they also pray that the United States and China will break the impasse that continues well into a second year and remove tariffs that contribute, at least in part, to lower commodity prices.

Despite occasional rumors that a deal is within reach, few foresee the stalemate ending any time soon.

It’s now not so much an economic issue, say two University of Tennessee Institute of Agriculture economists. It’s politics.

Aaron Smith, associate professor and Extension crop marketing specialist, and Andrew Muhammad, professor and trade policy specialist, in an exclusive Farm Press interview, said progress depends on either the Chinese or the United States or both together being willing to move.

More political than economic

“It’s far more political, I think, than economic,” Muhammad says. “So, the real question would be, at least for agricultural constituents, do we remain with the current status quo of a perpetual trade war with annual bail out packages? Is this enough to keep farmers as supporters?”

At some point, he and Smith agree, the public will push back on the government’s spending of tax dollars to assist farmers hurt by trade disruptions.

“You hear that now,” Smith says. “But the howl of protest may become more strident the longer trade mitigating payments to producers continue.”

“I have no idea what’s happening on the Chinese side,” Muhammad says. He adds that the sentiment in China could be that the tariffs are a point of Chinese national pride, a sense of patriotism.

He also adds that the catalyst for the ongoing trade dispute “is based on policies we initiated.”

He doesn’t dismiss the notion that China has been a bad actor for years, in regard to intellectual property rights as well as committing other trade distorting practices. “But the escalation of tariffs is something the U.S. initiated, and the real issue is not about resolving this solely for agriculture; it’s also about resolving what initiated this in the first place.”

Complication piled up

Protecting intellectual property rights may have been the catalyst, but complications have piled up since the first actions.

And the endgame appears uncertain.

Muhammad said it has not been made clear to the public what U.S. trade representatives expect China to do “in terms of ensuring that U.S. intellectual property, patents and production rights are protected.

“I have not heard, in relation to the 301 tariff authority, if the issue will be resolved when and if the Chinese implement a defined set of actions and policies.

“If we go back to the initial issue of intellectual property rights that initiated the 301 tariffs (which still doesn’t address the steel and aluminum tariffs, which caused other countries to retaliate as well), I haven’t seen anything specific from the White House on resolving intellectual property issues. That’s not to say that the information is not out there; it just may not be readily available to the public.

“We know the issues that got raised, but I have not heard anything about what the Chinese are actually expected to do to resolve those issues,” Muhammad said.

He added that he was surprised at how rapidly the dispute escalated. “The thing that surprised me was the second round of tariffs. I didn’t know that both countries would be willing to pile on even more tariffs.”

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