Trade Detente


During the Cold War, a slogan occasionally appeared on t-shirts and bumper stickers: “When you’ve seen one nuclear war, you’ve seen them all.”

The same might be said for trade wars. They may not level cities, but they can wreck economies. They’re definitely worth avoiding because, as with nuclear wars, both sides lose.

Despite this, Chinaphobes in the United States appear bent on launching a trade war that would hurt American exporters and consumers. One bipartisan bill currently before Congress would slap a 27-percent tariff on all products made in China, unless Beijing increases the value of its currency.

They ought to call this proposal “the nuclear option” because it’s precisely the wrong approach. It simply won’t work and would lead to immediate retaliation. The Chinese would impose punitive measures on American-made goods. The legislation also would hurt ordinary American consumers because it will raise prices on everything from clothes to toys.

Farmers, too, have a lot to lose in a trade war. Last year, China bought nearly 10 percent of U.S. agricultural exports. That’s $6.7 billion in revenue, mostly in soybean and cotton purchases. After the NAFTA countries, only Japan and the European Union are more valuable export markets. That may change soon: Our farm exports to China are expected to rise to $8.3 billion this year, for an increase of almost 24 percent.

Growth like that is so explosive you might want to call it “nuclear.”

We constantly hear about America’s trade deficit with China. In agriculture, however, we enjoy a major trade surplus. Last year, we imported $2.1 billion in agricultural goods from China. This year, the figure is forecast to inch upwards to $2.6 billion. Fruits, vegetables, and tree nuts account for much of it. The bottom line is that they’re buying much more of what we grow than we’re buying of what they grow.

We shouldn’t threaten this healthy state of affairs with hot rhetoric or feel-good legislation.

What’s more, this positive trade gap is likely to grow, increasing our advantage. Not only does China have well more than a billion mouths to feed, but its people are gaining wealth. They will increasingly demand high-protein foods, such as American beef. Right now, our ranchers are basically shut off from Chinese buyers–ever since a mad-cow scare in 2003, when a single case was detected in the United States, China and many other countries have banned imports of U.S. beef.

Removing this beef ban should be a top goal of American trade negotiators. The current approach of twice-yearly trade talks, led by Treasury Secretary Henry Paulson, has yielded concrete results. The most recent round, for instance, will lead to more air traffic between the United States and China plus greater business opportunities for American banks, securities firms, and insurance companies.

Ultimately, the Chinese must (and will) float their currency. At the moment, Beijing pegs the yuan to the dollar. That means that as long as the U.S. dollar is weak, their yuan will be too. The current value of the yuan is almost certainly 30 to 35 percent less than what it would be. If the yuan were to increase in value, the Chinese would be able to afford even more U.S. exports–very good news for farmers, as well as anybody who seeks to sell made-in-America products overseas.

On the downside, it would also raise the cost of Chinese products sold in the United States. As long as the transition to a Chinese free-market currency is marked by steady progress rather than jarring adjustment, it will help everyone.

It’s possible to be critical of China without becoming hysterical. The world’s most populous nation needs to change. Its people deserve more political freedom. Its rulers must release their tight grip on the economy–they’ve loosened it in recent years, but not enough. There’s far too much piracy of intellectual property rights.

In pressing for change, however, we must always bear in mind the interests of the United States, which is for mutually assured cooperation rather than mutually assured destruction.

Dean Kleckner, an Iowa farmer, chairs Truth About Trade & Technology.

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