On Lobsters and Canaries

Updated: Jun 21, 2019

As President Trump focuses on tariffs as a simplistic tool to address trade issues, a new study by the Peterson Institute for International Economics (PIIE) shows that Beijing is operating on a higher level. China is outplaying the United States on two fronts: Keeping U.S. products out of China and bringing our competitors’ products in. https://piie.com/blogs/trade-investment-policy-watch/trump-has-gotten-china-lower-its-tariffs-just-toward-everyone

Lobster is a perfect case study. Maine exports more lobsters than any other product. https://www.census.gov/foreign-trade/statistics/state/data/me.html And a lot of those lobsters go to China. As China developed a middle class, tens of millions of people sought new luxuries (and new sources of protein). Lobsters became the prestige meal for Chinese New Year delicacy and Maine could happily provide them.

President Trump’s trade guru Peter Navarro boasted that no country would retaliate for the U.S. tariffs. https://theweek.com/speedreads/782615/trump-trade-adviser-peter-navarro-insisted-no-country-dare-retaliate-trumps-tariffs-wrong China, apparently, didn’t listen to Navarro. Not only did China slap a 25 percent tariff on lobsters, it cut tariffs on Canadian lobsters. U.S. lobster sales to China are off by 70 percent. Canada’s lobster sales to China have doubled.

Maine’s Republican Senator Susan Collins told President Trump she is worried that Maine may never recover its position in this export market. She also asked Trump for aid to the lobster industry but he hasn’t responded, probably because his team does not see Maine as important to his reelection effort.

As the PIIE study shows, Beijing is picking and choosing wisely. China cut its tariffs on the rest of the world’s fisheries, farmers, and firms. China struck at on American soybeans, in part because it knew that Brazil and Argentina could provide ample alternative supplies. But it has left untouched other American exports that are more difficult to replace. For example, China could order its state-owned airlines to shift from buying Boeing to European-based Airbus. China’s airlines, however, need parts and services to keep their Boeing fleets running. Beijing, therefore, spared the aircraft sector from retaliation.

Worse, Trump has no real mitigation strategy to help the Americans facing the entirely foreseeable costs of his policies. Yes, he’s giving out tens of billions of dollars in agricultural subsidies, but that is, of course, a cost borne by Americans, not international rivals. His separate trade restrictions on nearly $50 billion in steel and aluminum imports have only worsened the effects of his fight with China; these restrictions have burdened American farmers by raising the cost of the equipment needed to harvest and storing the crops they now cannot sell abroad. https://www.theatlantic.com/politics/archive/2019/03/tariffs-drive-farm-income-down-and-equipment-prices/583684/

And he’s compounding this short-term pain with possible long-term damage to previously healthy international relationships: Those steel and aluminum tariffs have mostly targeted trade from allies such as Europe, Canada, and Japan—not China. He is now threatening tariffs on tens of billions of dollars’ worth of Japanese and European cars.

For Chinese consumers, it is now 14 percent cheaper to buy something from Canada, Japan, Brazil, or Europe than it is to buy something from the United States. Beijing is making it worthwhile for its consumers to develop new commercial relationships. And once those new ties are formed, the Chinese may not bother to switch back.

Clearly, Navarro was wrong. Not only did China retaliate, the Europeans, Japanese, Russians, Canadians and others did as well. More worrisome than Navarro’s rhetoric was how it revealed a fundamental misunderstanding of how trade works. In each of its provocations, Trump’s team sees trade through the narrow lens of a two-country world: America versus a singular target county. The dynamic, however, is that the target countries joined together to replace the United States as the center of world trade.

Whenever another country lowers its tariff to a country other than the United States, the global economy moves forward and leaves America behind. Trump chose this outcome once when he pulled out of the Trans-Pacific Partnership agreement in January 2017. The result is that ranchers in Australia, New Zealand, and Canada now have access to the lucrative Japanese beef market and Americans do not. Beijing’s positive overtures toward America’s former economic allies suggest Trump’s unilateral approach toward China has isolated America.

Lobster may be the canary in Trump’s trade-war coal mine. It is an alarm that says it we don’t change course, we may choke off all of our export markets.

Richard Holwill

June 18, 2019

Richard Holwill

June 18, 2019

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