The international game of "policy poker" could have a serious impact on trade, but who holds the winning hand?
Luther Tweeten, agricultural economist emeritus of Ohio State University says the prolonged standoff over the collision of a U.S. spy plane and Chinese fighter plane could result in China having more to lose. "The United States is China's largest trading partner," Tweeten says. "Their trade surplus with us has run up as high as $50 billion in some years. It would be an incredibly serious blow to them to lose access to our market."
But Tweeten points out that the U.S. has a significant stake in their market as well, in the form of nearly $3 billion in agricultural exports forecast for this year. That makes China the fourth largest agricultural market behind Japan, Canada and Mexico, and a serious player at the trade table. The U.S. Department of Agriculture projects $1.6 billion in farm exports to China proper, and another $1.3 billion in farm exports to Hong Kong, which rejoined China in 1997.
Up to now, U.S. ag trade with China has involved occasional shipments of grains and meats. But the long-term prospects are much more promising. "As Chinese incomes rise due to continued economic development, the Chinese people will buy more meat, which will increase their livestock production and poultry production," Tweeten says. "That's going to take a lot of grain for feeds, which we can supply to them."
U.S. agricultural exports to China could increase by another $1 billion annually if China enters the World Trade Organization, which would loosen trade restrictions with member states. "China could be a shoo-in to entering the WTO, unless they make a mistake of making a bigger issue out of this plane incident than it really is," Tweeten says.
An escalation of the standoff could hurt China's status as a preferential trading partner, which Congress made permanent last year contingent upon China's admission to the WTO. The permanent status means Congress wouldn't have to annually review the relationship to approve it. Since China has yet to join the WTO, Congress will have to review it this June. Some members of Congress are threatening to block China's permanent trade status with the U.S. because of the plane standoff.
Tweeten's overall concern is the incident could cause a protracted struggle between China as an emerging power, and the superpower status of the U.S. If more friction occurs, China could emphasize self-sufficiency as a matter of its national security. "China might become very, very weary of depending on imports of food or food products from the United States or other foreign sources."
Ag Answers is the electronic source for research-based, objective information provided by Cooperative Extension Service specialists in Ohio and Indiana.