ORLANDO, Fla. — A clash of basic values is hindering progress in a new China-US trade deal as well as in getting trade talks going with the European Union, said Arlan Suderman, chief commodities economist at INTL FCStone.
In remarks at INTL FCStone’s Global Markets Outlook conference on March 4, Suderman said asking the European Union to include agriculture in upcoming trade talks would be like asking China to move to a free market economy, terming both situations a “significant values clash.”
China sees its economy and military as one with no interest to change, Suderman said. China’s strategy for superiority is seen as a strategy for security.
US President Donald Trump needs to think about the next election in two years, while China’s “president for life,” Xi Jinping, needs only to keep the core group of 400 leaders in the communist party happy, Suderman said. China knows that the recently elected Democrat-controlled US House makes Trump a weaker negotiator, as does the short-term nature of his presidency, either two or six more years. Under China’s current structure, it would take another eight years to change how the economy operates. If the European Union joined the United States in its pressure on China, the change could happen in four years, he said, but the EU lacks the will power and the economic strength to do so.
Instead of moving toward reform, China’s government has moved toward stronger control, in part due to rumblings within the Communist part about Jinping’s handling of the trade war.
China has a history of making promises and not keeping them, Suderman said, noting that in the past China has made promises to one US administration and then not kept them under the next administration without repercussions. There’s little chance that a trade deal will change the way China does business long term, he said.
“China needs a deal to get its economy going,” Suderman said, noting indications that China’s economy is growing at only about 1.5 percent, well below “official” growth estimates above 6 percent and much slower than in recent years. The trade war has hurt China a lot more than it has hurt the United States because of China’s export-based economy versus the United States’ consumer-based economy, he said.
“Trump and Xi need a trade deal,” Suderman said. “They have incentive, as does Trump to kickstart his 2020 campaign.”
Currently, Jinping is trying to “throw money at the Trump base to force him to make an agreement,” he said.
The greatest potential impact could be on US corn, Suderman said. He also noted a scenario in which China could import US corn, blend it with old, lower-quality corn it its own reserve, and make a profit selling it at high domestic prices.
“I don’t see a scenario that will fix the soybean balance sheet,” Suderman said, noting that South American soybeans will undercut US soybeans.