In the movie The Princess Bride, the criminal mastermind Vizzini outlines one of his “classic blunders” as: “Never get involved in a land war in Asia.” As tensions between the United States and China continue to escalate, it’s possible the Trump administration may have to slightly amend that from “land war” to “trade war.”
This set of tariffs is in addition to the 25 percent tariff placed on Chinese goods earlier this year — to which China responded with its own 25 percent retaliatory tariff — and is set to begin on September 1, 2019.
China’s response to the president’s latest tariff volley is to stop buying American farmers’ agricultural products altogether.
As many farmers across the country have dealt with droughts and flooding, they must also now deal with their fourth-largest customer essentially vanishing from the global market.
President Trump’s trade war is an attempt to fight back against China’s misconduct in the market such as currency manipulation, intellectual property theft, and trade “dumping.” This has caused commodity prices and exports to drop.
To help cushion the blow to America’s farmers, the administration offered a $16 billion taxpayer-funded agriculture subsidy to offset the financial losses.
The Texan contacted Dr. Luis Ribera, a professor of agricultural economics at Texas A&M, to get his thoughts on the trade dispute developments.
“There are no winners in a trade war,” Ribera began by saying.
Texas’ main exports to China are cotton, sorghum, wheat, and beef. Ribera said exports of these products to China have dropped since 2017 anywhere from five percent (cotton) to 70 percent (wheat).
Overall, China represents Texas’ third-largest trading partner.
Ribera said that both sides depend heavily on each other’s respective exports, and that “Chinese consumers will pay more for our agricultural products — who already pay 25 percent of their income on food — while the U.S. depends on China’s cheap products.”
In the absence of American farmers trading with Chinese consumers, Ribera also pointed out that one of America’s main soybean competitors, Brazil, will fill the void — cutting American farmers out of that part of the market.
January through June of this year has seen a 34 percent drop in trade from Texas to China compared to the same time frame last year.
After the July 2018 tariffs were instituted, Texas exports dropped over 50 percent from the first six months to the last six.
It remains to be seen how the recent escalation in the trade war will affect Texans, but if 2018 is any example, it could negatively impact some industries’ bottom line.
In fact, Goldman Sachs’ chief economist Jan Hatzius fears it could spark a recession. Hatzius projects that fourth-quarter growth could drop to 1.8 percent and measures the impact on the nation’s GDP thus far to be 0.6 percent.
The Texan reached out to the Texas Oil and Gas Association (TXOGA) for comment on whether they are worried the trade war could have a spillover effect on the energy industry. Texas is the leading energy producer in the country.
Todd Staples, President of TXOGA, stated, “New tariffs disrupt established markets, increase the cost of doing business, and make domestic production of oil and natural gas — which are at their highest levels of production since 1949 — less globally competitive.”
He added, “They could also raise energy costs for U.S. businesses and consumers.”
Staples concluded, saying, “While we’ve seen impressive accomplishments from this administration, like tax reform and a renewed commitment to science-based regulations, we are concerned that these tariffs threaten the nation’s ability to achieve President Trump’s goal of energy dominance.”
In addition to the tariffs, the Trump administration labeled China a currency manipulator.
While penalties could follow, they are not likely and the label generally serves as a symbolic move.
Texas Comptroller Glenn Hegar told The Texan, “Texas is the nation’s top exporting state and exports more than California and New York combined, so anything that inhibits international trade and exports from Texas poses a potential threat to the state’s economy and revenues.”
He continued, “I understand and support the President’s goals as they relate to ensuring fair access for Texas companies and farmers in foreign markets, and I firmly believe we must protect intellectual property rights.”
“As I have said repeatedly, however, free trade is crucial to the Texas economy,” Hegar concluded.
On Tuesday, the United States Trade Representative announced that some of the products being hit by the extra 10 percent tariff would be removed from the list for “health, safety, national security,” and other reasons.
Additionally, the 10 percent tariff on certain products is delayed until December 15.
Some of those products are “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.”
Dr. Ribera at Texas A&M concluded that whatever economic consequences come to America from the trade war, “It will have a ripple effect on the rest of the world.”
Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.