US Farm Deals With South Korea and Japan to Limit China Trade War Retaliation

November 25, 2019 Updated: November 25, 2019

News Analysis

The Trump administration’s new farm deal with South Korea and the passage of Japanese agricultural import legislation undermine China’s trade war retaliation strategy.

China’s trade war retaliation strategy, which is aimed at economically targeting President Donald Trump’s rural voting base, took two huge hits this month. South Korea ended its four-year rice ban on Nov. 19 and agreed to allow rice imports of at least 132,304 tons annually. Shortly thereafter, Japanese Prime Minister Shinzo Abe overcame opposition in the Lower House for a potentially huge American beef, pork and corn import deal.

China has employed a sophisticated U.S. voter targeting methodology to maximize the economic pain of its retaliatory trade war tariffs in so-called U.S. “battleground” counties that President Trump will need to win in the 2020 elections, according to a study by the U.S. Bureau of Economic Research.

There has been an uptick in farm bankruptcies, mostly due to weather issues, but the U.S. Department of Agriculture forecasts 2019 farm income will increase by $4 billion, or 4.8 percent, to $88 billion in 2019, after rising in both 2017 and 2018. The USDA report added that 2019 farm income will be in the top 30 percent after inflation.

The Chinese strategy has inflicted substantial economic pain on its own households, with China food inflation rising from 11.2 percent in September to 15.5 percent in October, the highest since January 2008. Bloomberg warned that China’s monthly consumer inflation surged past 3 percent in September and could exceed 4 percent in early 2020 on the back of surging pork and other meat prices.

The ratio of Chinese household debt to gross domestic product rose by 2.1 percentage points in the first six months of 2019 to 55.3 per cent, according to Beijing think tank National Institution for Finance and Development. With China accounting for 15 percent of global debt, NIFD warned the strain of heavy debt and high inflation is hurting consumption.

Domestic inflation is credited with forcing China on Nov. 13 to lift its almost six-year ban on U.S. poultry imports that was valued by U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue at “more than $1 billion worth of poultry and poultry products each year.”

The last World Trade Organization (WTO) agreement covering Korean rice exports expired in 2014. Under the new rice deal, the first 408,700-ton import tariff-rate quota will fall from 513 percent to 5 percent. With only 388,700 tons of rice imports subject to U.S., Australia, China, Thailand, and Vietnam specific quotas under WTO Plurilateral Agreements, U.S. rice farmers have export potential for another 20,000 tons.

Under the Japanese agricultural deal that is expected to clear the Upper House and be signed by Prime Minister Abe on Dec. 9, Japan will gradually lower its 38.5 percent tariff on U.S. beef to 9 percent and remove or reduce its tariffs on U.S. pork. The agreement also covers greater access for American cheese, wine and wheat exports to Japan.

The United States agreed to remove or reduce tariffs on some types of manufacturing equipment as well as for other industrial products, including parts for air conditioners and train locomotives and railcars from Japan.

But the Trump administration did not remove the 2.5 percent tariff on all Japanese car exports to the United States—a U.S. key concession the Obama administration offered Japan for approval of the Trans-Pacific Partnership. President Trump abandoned TPP because he believed it was bad for U.S. workers and the economy, and has refused to discuss auto tariffs as long as Japan continues to hammer U.S. auto parts exports to Japan with up to 80 percent tariffs.

U.S. Senator Cindy Hyde-Smith (R-Miss.) welcomed the news of both the rice agreement with South Korea and poultry agreement with China “that will benefit Mississippi agriculture directly.” She stated that with Mississippi being America’s sixth largest rice producer and fifth largest poultry producer, the deals could bring over $100 million to the State of Mississippi.

Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.

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