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Hitting the heartland

If China is heading into a trade war with the United States, it’s threatening to strike a strategic blow to the agricultural heartland where President Donald Trump fared well in 2016’s presidential election.

That’s the expert opinion of Ian Sheldon, an agricultural economist at The Ohio State University who also leads the Andersons Program in International Trade.

In March, the Trump administration proposed levying tariffs on $50 billion of Chinese imports annually to crack down on unfair trade practices. China countered with an announcement of its own: a proposed 25 percent tariff on imported products from the United States, including wheat, corn and soybeans.

“They picked soybeans because we know many farmers in many of the Midwestern agricultural states voted for President Trump,” Sheldon said. “The hope is farmers, representatives and lobby groups will put pressure on the administration to draw back from its tariffs.”

Sheldon discussed what those tariffs could mean for American consumers and other approaches to reducing the trade deficit with China.

Do you think China will follow through with its threat to impose tariffs on soybeans?

It all depends on whether the U.S. follows through with its threat to implement tariffs that would affect $50 billion worth of trade. The Chinese have clearly signaled that they will hold off until the U.S. has actually implemented those tariffs. Right now, there’s a 50 or 60 percent chance that this will push on to a more serious trade war.

If China implements a 25 percent tariff on soybeans, how would this affect the U.S. economy?

We export approximately $14 billion worth of soybeans annually to China. I saw some estimates suggesting a 25 percent tariff would result in a 65 percent decline in soybean exports by the U.S. to China.

Soybeans are Ohio’s No. 1 (agricultural) export. We export approximately $1.8 billion worth of soybeans, and about 37 percent of those exports go to China. So you’re talking about a pretty significant loss of market share for the U.S. and Ohio, in particular.

Should American consumers be concerned? If so, why?

U.S. consumers will not be hurt in my opinion by Chinese tariffs on soybeans. … It might feed into slightly lower food prices here in the U.S. because soybeans are an important source of protein in animal feed for the meat and dairy sector.

But if a trade war breaks out between the U.S. and China, American consumers will be impacted by that. … Consumers (of relatively lower income) purchase a lot more goods that are traded internationally than people at the upper end of the income distribution.

What do you make of this as an economic policy generally?

The trade deficit (with China) is not going to be solved by a trade war. The trade deficit is a macroeconomic phenomenon.

It’s driven by the fact that for some time in the U.S., demand — consumption, investment and government spending — exceeds what we produce. Consequently, we are net importers in order to satisfy that demand.

It doesn’t matter if you cut imports from China; those imports are going to come from somewhere else.

How do you propose we solve the trade deficit then?

You can only resolve the trade deficit problem through either getting Americans to save more or more logically cut the budget deficit, which would push demand closer to matching production in the U.S.

If we are really concerned about China’s abuse of intellectual property rights, we should be pursuing that through the appropriate channels such as the World Trade Organization and other government structures.

It might be slow, but I think blowing up the global trading system that has been in place in the post-war period is a very bad idea.