Monday, July 23, 2007

Trade War with China: Bankers not Concerned

In our July survey of bank CEOs in rural portions of nine states, we asked the bankers to name their top issue that might undermine the economy.

And 76.1 percent indicated that higher energy prices represented the greatest risk. Loan defaults, a significant national concern, was named by only 13 percent of the CEOs. Only 10.9 percent listed a trade war as the primary risk.

That is, while 45.7 percent of the bankers thought a food trade war with China would be very bad for the Mainstreet economy, only 10.9 percent of the bankers registered it as a significant risk to the rural economy.

In my judgment, bankers and agriculture interests are too sanguine regarding the likelihood of rising trade barriers on farm products and the economic fallout from the increased interference from the flow of trade. If there is one issue that most economists agree with each other on and vehemently disagree with politicans on is trade. Even Republicans see blocking trade as a winning strategy with voters. The winners are both concentrated and easy to identify while the losers are widely dispersed and difficult to identify.

China has just suspended meat products from seven U.S. companies, including Sanderson Farms Inc. , Intervision Foods, Triumph Foods, and Tyson Foods Inc. the world’s largest meat processor.

This is just the opening salvo of a most dangerous period where electoral politics and economic policy mix to form a concoction that only Hillary Clinton (not Bill) could love. Clinton's 1993 NAFTA was truly remarkable (and positive) in retrospect. Are we going to look back on Bill Clinton as we currently do John F. Kennedy and say, "Now that was a time when Democrats made sense."

Ernie Goss

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