The United States did not wait for Donald Trump’s election
to challenge the Chinese agricultural policy
Frédéric Courleux, advisor of Momagri
14 Novembre 2016
The campaign of the American presidential election was marked by a general rejection of free trade theories; In fact, Donald Trump directly took on the WTO, and often held China accountable for the ills of the American economy. The President’s actions will undoubtedly––at least to some extent––distance themselves from the candidate’s speeches. By attacking the core of the Chinese agricultural policy at the WTO this past September, the United States did not wait for Trump’s election to engage in what is bound to be a new agricultural trade battle. Nonetheless, Trump’s discourse differs with the usual pretense, and shows more than ever before that the international community needs to renew its mindset on governance in agricultural policies. We are developing here the concept that the US attack of the Chinese agricultural policy exposes the inadequate foundations of the WTO agricultural regulations.
“We are going to renegotiate or get out [from the WTO] (…) These trade agreements are a disaster. The World Trade Organization is a disaster. NAFTA is a disaster.”1 “When was the last time we outperformed China in a trade agreement? They are killing us. As far as I am concerned, I am constantly fighting China.”2
Of course, it is too soon to judge how the President’s future actions will match the Republican candidate’s discourse. Yet Donald Trump’s winning campaign already provides some ongoing and upcoming indications on the American trade policy, especially regarding agriculture. Trump’s position on world affairs is considered to be tempted by protectionism––or even “isolationism”––thus in a way indicating that a split from free trade theories could be effective. At a time when the TTIP trade negotiations seem more jeopardized than ever before, a broader issue is being raised: Are we seeing a change of course or only a clarification of doctrine? Regarding agricultural issues, one might be tempted to opt for the second alternative.
On one hand, the US strategy has long been to turn its back to the 1930-1980 years, during which it clearly worked toward stabilizing international grain prices through intense stockpiling and set-aside land, stabilization that proved to be a required condition for trade development. Since then, it has waived to play the role of “stockpile buyer of last resort”, to quote the economist Jean-Marc Boussard.
On the other hand, the approach of the United States all along the Doha Round showed that it was mostly seeking to preserve the achievements of the current WTO regulations, which gives it significant latitude to make changes to its agricultural policies, more or less as it pleases. This is in contrast to the European Union, which has often wanted to be the free trade star student by proposing counterparts––a byword for constraints–– to its partners, in order to develop its own agricultural policy. In fact, seeing Donald Trump confronting the WTO is indeed surprising, since most of the WTO regulations were set by and for the United States, which struggles to uphold them, even when 33 developing countries led by India wish to renegotiate some provisions concerning stockpiling policies.
In the end, Trump’s election deserves the credit to shed light on a “real politik” that has been already effective for two decades, a fact that will only surprise the naïve globalization supporters. Another argument to support this is the Obama Administration’s condemnation of the core of the Chinese agricultural policy at the WTO this past September. More precisely, the high-level support system for grain is criticized as incompatible with the commitments of the Middle Kingdom when it joined the WTO in 2001. In the end, the problem is quite simple: The decline of agricultural commodity international prices leads, for the American side, to an increase of the difference between Chinese domestic prices and prices at borders. Since this difference is considered as the equivalent of an illegal subsidy in WTO rules, China is therefore breaking them, and all the more so since it also uses other types of direct support. For its part, the United States is sheltered by the very questionable but little questioned principle that direct subsidies have little or no “distortive” consequences on trade, and thus remain within the rules it has, for a large part, decided along with the Europeans.
This criticism at the WTO, which is not the first against the Chinese on agricultural issues, now goes to the core of the Chinese agricultural policy, and looks more like a trade war declaration than a little skirmish. Did the Obama Administration want to demonstrate to the American farmers that the WTO rules could protect them to counter the isolationist and the anti-free trade trends? It is possible but ineffective, or even counter-productive. Ineffective because taking into account the production cost structure, the response of supply to declining support or price levels is quite weak: Without actions to cut overproduction, a return to equilibrium is very lengthy. And counter-productive because in the period ending the commodity super-cycle, the solutions to stem depressed international markets are more easily found in cooperation in order to hold key producing countries in charge to compete in international trade.
In addition, the idea of forcing the Middle Kingdom’s hand on agricultural issues seems to be over-confident, when we know the strategic importance of the Chinese agricultural policy for China as well as for the world food security. The announcement to maintain the wheat minimum price for 2017 ($372/ton) in early November also shows that China is not ready to make concessions. Gradually strengthened since the end of the 1970s, China has indeed built its economic development on solid foundations by adopting a strong agricultural development policy, which leads to the current paradox that the world workplace is also the world country where production prices are among the highest.
With a huge public stockpiling network (250 million tons, or the equivalent of the whole European grain production), China currently accounts for half of the end-of-year stocks, that is to say the stocks that allow bridge the gap and meet a subsequent reduced harvest. This stockpiling policy is also the cornerstone of an intense diplomatic activity between Southeastern nations. This is the reason why rice––contrary to wheat and corn––was spared from tackling the latest food crises in 2010 and 2012, which mostly affected the countries producing wheat (cf. Arab Spring). The Chinese agricultural policy is a stabilizing agent for China’s economy and for the Chinese population noticeable by significant imbalances between urban and rural areas. Supporting agricultural prices also has an objective of political and social stability.
By spending over $100 billion annually for its domestic food aid programs, we note another paradox. The United States also has this objective, but uses a different system by directly funding dedicated school cafeterias or distributing food stamps for some products. These allocations have strangely been eliminated from the OECD indicators that monitor agricultural and food policies, and are not subject to WTO reduction commitments. Each nation has its own history and specific institutions; The current WTO regulations must recognize China’s and other countries’ right to use its agricultural policy in this way.
To continue imposing a framework established by and for developing countries is the nonsense of the Doha Round, which was supposed to be the development round. Donald Trump’s bitter words on the WTO, combined with the Obama Administration’s trade aggression against the Chinese agricultural policy, are maybe signing the end of the Doha Round negotiations. The time has come to break away from the pretense in order to open the way for a new approach of international trade relations regarding agriculture. Failing that, a generalized trade protectionism is the most likely scenario, with each country protecting itself against depressed international markets. The project of a genuine world governance system in agriculture must be reborn from the cooperation between the objectives of various and plural agricultural policies.
1 In an NBC News interview on his views on trade policy