Consequences Of The Escalating U.S.-China Trade War

NPR's Rachel Martin talks to Ohio soybean farmer Chris Gibbs and David Wessel, director of the Hutchins Center at the Brookings Institution, about the trade tensions between the U.S. and China.

RACHEL MARTIN, HOST:

Chinese trade negotiators are coming to Washington this week for meetings that many had hoped would end a trade war between the U.S. and China. President Trump, as part of what he has called his America First agenda, made it a priority to take on the Chinese trade practices that many U.S. companies believe are unfair. Now, instead of a truce, the president is threatening an escalation of the trade war. On Sunday, he tweeted that he might increase tariffs on $200 billion worth of Chinese goods and that this would happen by the end of this week.

In a moment, we'll hear from economist David Wessel about those trade negotiations. But first, we're going to hear from an American farmer about how the dispute has affected him, his real life. Chris Gibbs is on the line from his farm in west central Ohio, where he grows soybeans and corn, also raises cattle.

Chris, thanks for being here.

CHRIS GIBBS: Good morning, Rachel. Thanks for having me.

MARTIN: You published a video op-ed in the New York Times last summer about how the trade war was affecting you back then. We've got a short clip of this. Let's listen together.

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GIBBS: I have to tell you, Mr. President - this hurts. This is hurting our long-term future. This is hurting me. When agriculture gets sick, everybody feels that kind of pain.

MARTIN: So that was back in August. Are you still hurting?

GIBBS: We're still hurting. And certainly, we've taken - I guess you'd call it - a gut punch this week with the president's latest rhetoric and threat on extending this trade war with China. So we're in quite the shape out here.

MARTIN: How - give me an example. Like, where is it affecting you on a day-to-day basis?

GIBBS: Well, other than the sleepless nights, just getting into some mathematics - back in March of 2018, one crop - just soybeans, which is pretty much my main crop here in west central Ohio - they were selling for about $10.50 a bushel on a cash basis. After the president put the punitive tariffs of steel and aluminum on, China retaliated, along with a number of other countries. And they essentially stopped buying soybeans. So prices plummeted about 20%.

MARTIN: Right. So it's that retaliation.

GIBBS: Today, that's extended - yeah. Today that's extended. The cash price of soybeans today is around $7.50 a bushel, so almost a - you know, a $3 drop.

MARTIN: Yeah. So...

GIBBS: That would be 30%.

MARTIN: President Trump tried to acknowledge some of that cost. He announced a $12 billion program to pay farmers who were going to be affected by the trade war. Have you seen any of that money, Chris?

GIBBS: Yes, I did. I was - I wouldn't want to say forced to take it, but I took it. It was about $20,000 to me.

MARTIN: Did it help?

GIBBS: Oh, sure. It helped. It paid - I had one - a transmission go out of a tractor. That was $14,000, so it pretty much took most of it.

MARTIN: But it hasn't been enough to compensate you for the overall loss.

GIBBS: No, not at all. And, you know, we're looking at - certainly, I'm looking at, you know, a $40,000 loss. And I don't want to argue over those dollars. It was good that the taxpayer came up with those dollars. But folks need to realize how much money that is - $12 billion going into agriculture. No - the government was shut down over a $5.7 argument over a wall. So (laughter) to have $12 billion pumped into agriculture, that's great. But that's only a one-time fix. Certainly, the taxpayer's not going to continue to do that. Why would they for a policy that's inflicted pain by our own government onto agriculture? And that's the tariffs.

MARTIN: President Trump has said farmers are great patriots. Then this is a direct quote - they understand that they are doing this for their country. What's your response to President Trump when he tells you to just hang tight?

GIBBS: Yeah, we can hang tight. But the fact is that it appears like the president believes that this is - the trade negotiations are kind of a one-off. And they're not. They're long-term. We established in agriculture - over the last 30 years, we've built these relationships, particularly with the Asian community, particularly into China.

MARTIN: Right.

GIBBS: And we built those relationships. And we built those markets for hogs so that hogs would eat soybeans, and we could sell them soybeans and on down the line.

MARTIN: And you see long-term damage to those relationships now.

GIBBS: That's exactly right. And so trading is not a one-off. It's not a win or lose - a one-time win or lose.

MARTIN: Right.

GIBBS: It's a long-term relationship that we've built. And those markets are being really adversely affected by our ability not to be a consistent trade partner.

MARTIN: Chris Gibbs, farmer in west central Ohio. Thanks for your time, Chris.

GIBBS: Thank you. Bye-bye.

MARTIN: We're joined now by David Wessel. He is the director of the Hutchins Center at the Brookings Institution. So David, we've known this. The trade dispute is having a real effect on U.S. farmers - many of them. Overall, though, the U.S. economy's been doing pretty well, right? I mean, unemployment's at a 50-year low. Could the threat of an increase in tariffs change that?

DAVID WESSEL: It could. I mean, we had a 10% tariff on $200 billion worth of Chinese goods that come to the U.S. The president's proposing to increase that to 25%. That pain will be felt. We already had companies like Caterpillar and Deere and sewing machine and washing machine makers raising their prices. There's no way they can absorb this increase. So it would increase prices. It would probably disrupt the stock market. And it would certainly shake business confidence because these are - there are other trade skirmishes going on. So I think it's a - it would be a really big deal.

MARTIN: What's your read on this, though? I mean, we've known the president to make hyperbolic threats sometimes as a negotiating tactic. Do you see it in that light or do you see this as a real possibility?

WESSEL: Well, I don't think we really know. But the most significant development overnight was that the Chinese decided that the vice premier, Liu He, is still coming to Washington. So the Chinese seem to want to get a deal. I think the Americans - President Trump in particular - think the Chinese need a deal more than he does. The Chinese think the opposite. So I think the good news is that the Chinese didn't say, the heck with this, we're staying home.

MARTIN: Right.

WESSEL: But it's going to be really right down to the wire. Liu He's going to be here Thursday and Friday. The president says the tariffs are going into effect Friday. We'll know by the end of the week whether there is progress in this - in reaching an agreement or whether there's going to be an escalation - and I think will be quite disruptive to the economy.

MARTIN: Can you explain what that disruption might look like? I mean, as we've had to do so often now, it's like...

WESSEL: Sure. It means that we would - yeah. Well, look. The pain is very localized now. The rest of the economy has been strong. I think what'll happen is we'll see more price increases, not only on the goods that we import from China but from domestic competitors. We've seen the price of washing machines go up nearly $100 per washing machine because of tariffs.

And then I think the bigger impact will be long-run, that - to the extent that we disrupt global supply chains, that companies get less efficient, that will make the economy function less well - slower growth and productivity or output per hour. And we'll live worse as a result of this, unless this is the day that the Chinese and the U.S. finally shake hands and bring this to an end.

MARTIN: Economist David Wessel, director of the Hutchins Center at the Brookings Institution. Thanks, David.

WESSEL: You're welcome.

(SOUNDBITE OF STEV'S "WHILE YOU'RE FADING")

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