Markets trump everything, says Vilsack

President Obama’s secretary of agriculture tells Agri Investor why he’s working to forge long-term partnerships in China as the Trump Administration follows through on its campaign promise of trade war with the country.

Agricultural exchange between China and the US predates even the establishment of formal diplomatic relations in 1979, but it was during Tom Vilsack’s tenure as secretary of agriculture from 2009 to 2017 that the sector truly moved to the center of the bilateral relationship.

Displayed most clearly during a 2012 visit to Iowa by then vice-president Xi Jinping, Vilsack’s focus on China helped lay the groundwork for ag’s current status as perhaps the primary theater of a relationship currently beset by an increasingly fatalistic mood.

As agricultural markets found themselves at the center of an incipient trade war, Agri Investor spoke with Vilsack who, in his current position as president of the US Dairy Export Council, was freshly back from his second trip across the Pacific this year, and touting a research partnership with a Chinese University designed to stimulate demand for American dairy products.

“Our relationship is a transactional one today,” says Vilsack. “We are trying to change the narrative from a transactional ‘You buy, I sell’ to a ‘Let’s work together to build demand for products and then let’s combine to meet that demand.’”

Vilsack recalls a meeting with Chinese officials while he was governor of Iowa, a position he held from 1999 through 2007. After suggesting China might consider purchasing American soybeans, Vilsack said he was given an early lesson in the complicated politics surrounding Beijing’s since-abandoned focus on agricultural self-sufficiency.

“The minister’s reaction was, ‘Well, if we buy soybeans from your farmers, we’ll hurt our farmers,’ and he literally got up from the meeting and walked out,” Vilsack remembers. “We went from that to 30-40 percent of our soybeans being sold to China.”

As Chinese officials have adjusted to depending on trade to feed the population and maintain social stability, Vilsack says he has stressed it is in their interest to maintain a diversification of supply. In recent dairy-focused discussions with China, Vilsack says he told his counterparts they could create a dependence on New Zealand that risked “chaos” in the event of a weather or disease event that disrupted supply from that country.

Ultimately, Vilsack says, the talks helped lead to a reduction in Chinese tariffs on US dairy imports from 12 to 8 percent late last year.

“It was something they did unilaterally – they obviously didn’t get anything in return for it – but they did it because they understood the message that we were conveying, which was you need to have multiple suppliers.”

On the question of whether Chinese retaliation in agriculture will erode rural support for President Trump, Vilsack suggests that while the president’s unilateral approach had engendered “angst” among agricultural producers, patriotism, tax cuts and other factors could end up softening the blow.

“His view of how to project our image in the world is different from mine; significantly different. I have some deep concerns about the way in which he governs, but he’s the president, so he gets to call the shots for the next two-and-a-half years.”

Still, Vilsack says the most important thing for a farmer is the market. Agricultural producers have long seen China as the “big kahuna” of export opportunities and understand that their long-term fortunes are dependent on maintaining access to markets outside the US.

“We can’t consume everything that we grow here. If we just build a wall around the United States and just sell to ourselves, you’re going to see a significant change in rural areas and in farming. So, that trumps everything – no pun intended.”