Branstad as Ambassador to China: More Interesting Than It Looks

In the stream of excellent appointments coming from Trump Tower, Donald’s naming of Iowa governor Terry Branstad as Ambassador to China hasn’t gotten a lot of notice, apart from the obvious point that farmers are the biggest free traders. That is true, of course, but a very smart reader with deep knowledge of international trade suggests that there is more to the Branstad appointment:

Trump could well be making a very shrewd appointment here. Terry Branstad has credibility both in the U.S. and China, not to mention influence over upwards of 25 electoral votes! He clearly has deep connections with China. But the real significance of the pick may be the exact opposite of what seems to be the case, if Trump’s trade proposals, essentially a threat of trade war, are taken at face value.

I think Terry Branstad is acutely aware of how important the China export market is — for Big Ag. Soybeans alone are enormous, the third largest global commodities market, if I am not mistaken, after oil and coffee. We are in huge competition with Brazil, which is neck-and-neck with the U.S. in domination of the global soybean market, of which China is the largest customer. In addition ag related manufacturing is big in Iowa and elsewhere in the Midwest; firms like Caterpillar and John Deere (HQ in Iowa [UPDATE: Rather, across the river in Moline, Ill.]) compete with global firms for business all over the world, including China. There is no way the Trump voters in Des Moines, Dubuque, Decatur and Dayton want a trade war with China.

So what’s going on? Forget about the largely bogus accusations of dumping, export subsidies and, especially currency manipulation. The Chinese currency has had a long term trend of increasing value and not export-motivated devaluation, as noted by the IMF and the U.S. Treasury Department. Furthermore, China’s entry into the WTO in 2005 had a positive impact on U.S. exports:

China’s entry into the WTO did not require the United States to lower its duties on Chinese imports, nor did it relax rules against Chinese subsidies. The main impact was to reduce Chinese barriers to exports from the United States. And there China’s entry has had measurable, positive impact.

The Office of the U.S. Trade Representative elaborated:

The annual tariff changes that China made following its WTO accession significantly increased market access for U.S. exporters in a range of industries, as China reduced tariffs on goods of greatest importance to U.S. industry from a base average of 25 percent (in 1997) to approximately 7 percent, while it made similar reductions throughout the agricultural sector. [emphasis added]

No doubt Terry Branstad is well aware of these facts and very sensitive to both the importance of U.S. ag related exports and the vulnerability of the ag sector to trade retaliation. In fact, the biggest issue for U.S. exports is the lingering Chinese tariffs and other exclusions on certain ag products from the U.S., arising from prior trade disputes in other sectors.

If Branstad can assuage the tensions in U.S. – China trade relations, and increase primarily ag exports by reducing existing Chinese trade barriers, it would tend to reduce the U.S. trade deficit, perhaps substantially. This achievement, for what it’s worth, might be possible without resorting to a ruinous trade war, punitive tariffs to protect low-value added manufacturing at the expense of more important sectors, or the rhetoric of demagogic and exaggerated claims and threats. Trump would be able to claim victory and go home, while pretending that his bluster forced concessions from China and gave us “better deals.” Such a political victory based on ag exports reducing the trade deficit, while ignoring the false promise to “bring back our stolen [manufacturing] jobs”, would be quite good enough for government work. Trump would demonstrate again that he is not to be underestimated politically.