History shows subsidies may make problems worse
As new tariffs were imposed on China last week by the Trump Administration and retaliatory tariffs followed shortly thereafter, President Trump sent his USDA Secretary to rural America with a message.
Back when trade disputes began with the renegotiations of the North American Free Trade Agreement (NAFTA), many within agriculture took a wait and see approach when it came to Trump’s trade strategy. Patience from farmers was strong at first, but with lower commodity prices and more tariffs on the way, that level of patience is now beginning to wane.
With the Ag Secretary’s latest message of relief for farmers amidst a trade war with U.S. farmer’s #1 customer, many are asking just what that relief looks like and if it will be much help at all?
Zuzolo has found that relief efforts like this have created a false sense of demand, eventually cutting demand and a building a supply surplus as a result.
“This is where the currency markets come into play and the U.S. dollar has performed extraordinarily well given what has happened,” Zuzolo said. “Over the last month we have seen the dollar make new 3-week lows and with that being an inflationary indicator that has helped.”
Zuzolo said with previous situations of trade barriers, protectionism and tariffs, the dollar became a safe haven and the currency of preference by the world markets, creating deflation and a drop in demand for U.S. goods. That doesn’t seem to be happening this time around, but Zuzolo advises to keep an eye on the dollar as it is an extremely valuable piece of the trade conflict puzzle.
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