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Sizing Up the U.S. Approach to the Tariff War With China

More pressure is needed on China to get them to negotiate, analyst says.

We start the month of September with more tariffs on both sides, with China hiking tariffs $5 billion in response to the U.S. imposition of 10% tariffs on $300 billion, only to have the U.S. hike it 5% more on all existing tariffs (another $27 billion).  

Stock markets around the world came under pressure, and the U.S. and China now can't even agree on when to have the next trade talks.  

Neither side seems too anxious to get talks underway again.   

Pres. Trump tweeted late Sunday: "Making great progress for our Farmers. Approved E-15, year round. Big additional list to be submitted & approved within two weeks. Will be even better for ethanol, and we save our small refineries!"   

The market reacted by going down overnight – a typical reaction, in the U.S., to political announcements. Maybe that’s the good news!  Thank God private, capitalist markets give almost no power to government officials in the capitalist U.S. 

In contrast, Communist China has all the power in one man – Pres. Xi.  With government power comes government influence, coercion, and eventually domination.  That is one reason we never want to be captive to the communist Chinese and the trinkets they sell – it could cost us our freedom.  

Tariffs were added on $111 billion of Chinese products Sept. 1 at 15%, with more to follow.  Chinese tariffs also were added, with part of the Chinese tariffs on U.S. soybeans – a joke because they already ordered no purchases of U.S. soybeans months ago. A 10% tariff on zero is still zero! 

The Chinese are going to lose this trade war, with its current remedy of devaluing its currency its only play left.  

I’m starting to believe the harder we are on China (higher tariffs, less business with them) the faster our trade dispute will be resolved.  As the faster we clamp down on them, the faster they will come to the table (even though the Chinese publicly say the opposite). The Chinese are masters at manipulating/distorting the truth during negotiations!  While they have been masterful, so far, in manipulating democratic governments, that script is becoming old.  

It’s time to push the Chinese into an agreement.  While the Chinese, so far, are resisting the urge to put their hat in their hand and come back to the negotiating table, everyone knows it is in their best interests to do so. 

When China sells $3 of goods to us for every $1 of good we sell to them, it’s plain to see who should be courting whom.

Even the simplest minded businessmen can understand the seller needs to court the buyer – not the other way around. If China wants to sell to the U.S., it has to comply with U.S. demands – it’s that simple. Until it does, the market world will indeed be an interesting place.   

Weather

Weather forecasts seem to be pushing warmer by the NWS (normal temps in the six- to 10-day forecast, and above normal for eight to 14 days) due to the hurricane Dorian that is pushing warmer air into the central and eastern U.S. 

However, many of the private forecasts are still calling for cool weather into mid-September, including below-normal temps the next seven days in the central and eastern Corn Belt and below normal in the eight- to 14-day forecast (including a cooler forecast this morning). 

We’ll see who is right.  

Northern Corn Belt producers have seen temps barely hit 70°F. for much of late August, and temps forecast to barely break 60 for the first few weeks of Sept. But, still no sign of freezing temps – it’s just that very few GDD accumulate when you have trouble breaking 60°F. or even 70°F.

Given that scenario, any combination of cold weather now (which slows crop development), an early frost, or even an average frost with continued cool weather will provide crop loss to this crop. We have a crop that started out horrible (late, wet) and then weather seemed to improve quite a bit. Yet, crops must reach maturity to reach their full potential and that seems unlikely to happen.  

Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm
in the country.   

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