Tom Vilsack
July 18, 2019

Vilsack: Chinese Trade Dispute Won’t End Any Time Soon

Top Story  |   |  By: Jim Dickrell

The U.S.-China trade war is unlikely to end any time soon, says Tom Vilsack, former Secretary of Agriculture in the Obama Administration and the current President and CEO of the U.S. Dairy Export Council.

The dispute is less about the U.S. trade deficit with the United States and all about how China does business with foreign investors in China. As such, the United States is essentially demanding that China change the rules under which its economy works and has grown over the past decades, says Vilsack.

Vilsack spoke yesterday at the Dairy Experience Forum in St. Paul, MN. The Forum is hosted by the American Dairy Association of the Midwest.

The U.S.-China trade dispute is really about how foreign companies gain access to the Chinese market. Foreign companies can attain access, but they must first find a Chinese partner and that partner must have controlling interest in the Chinese portion of the business. If the foreign company has cutting edge technology, it also must share that technology with the Chinese subsidiary. In turn, the Chinese subsidiary can share the technology with Chinese-owned enterprises without any payment.

“It’s unfair—no question,” says Vilsack. “The [Trump] Administration had the right idea about raising the issue, but went alone and didn’t ask Japan or the European Union or South America to join us.”

As a result, the U.S. has less leverage and the Chinese know they can wait out the Trump Administration. “The Chinese have political patience. They can wait two or six years,” he says.

Vilsack doesn’t foresee any agreement on these fundamental issues near term. “Don’t expect an agreement unless we back off our demands,” he says. There may be some agreement reached, but it’s likely only to involve the level of trade and the trade deficit. Even then, the Chinese have a history of buying less than they say they will.

Vilsack is more optimistic about passage the U.S.-Mexico-Canada (USMCA) trade agreement. Although there are objections from Democrats (and more than 100 lawsuits have been filed in Mexico over labor issues), Vilsack expect the agreement will pass Congress this fall. It will likely be wrapped together in a broader package that involves the budget and the Federal debt ceiling.

There may also be a mini-trade deal with Japan yet this year. That would be a good thing for U.S. dairy exports because dairy consumption is rising 4% annually in Japan, despite its aging population. If the U.S. and Japan reach a deal, U.S. dairy export volume could double and value of those exports could triple, he says.

When asked what dairy farmers can do to pressure Congress to pass trade deals, he urged farmers to educate their Representatives and Senators about the role food and agriculture plays in the U.S. economy. While there are only 38,000 dairy farmers, all of food and agriculture represents 43 million workers. That’s 28% of the U.S. work force, and is larger than steel, aluminum, autos or IT. Food and agriculture, he says, represents 20% of the U.S. economy and should not be among the lowest priorities when trade deals are negotiated.