Global Trade Rules, Economies, & Agriculture

International trade is vital to Nebraska agriculture. Exports account for as much as 30% of the state’s total agricultural receipts. Nebraska and U.S. agriculture have benefited over the past few decades from international institutions established to set trade rules and resolve disputes. In recent years, however, those institutions have struggled to adapt to the world’s varied economic systems and geopolitics. The issue was mentioned earlier this year at the CME Group Foundation Symposium hosted by the Yeutter Institute at the University of Nebraska. A Trump Administration trade official speaking at the symposium noted that China’s state-owned enterprises, limits on capital and labor flows, targeted government investments in private firms, and high levels of government spending complicate bilateral trade negotiations and efforts to integrate China into multilateral institutions such as the World Trade Organization (WTO). These complications, countries’ nationalistic turns, and political pressures have led to the weakening of the global trading order and institutions like the WTO.

The international institutions governing world trade were developed following World War II, created largely by democratic countries with mixed-market economies. Even though it was a communist nation and its government heavily involved in the economy, China joined the WTO in the early 2000s with the hope that its participation would nudge it towards more free and open markets. At first, it appeared the goal would be realized. However, under Xi Jinping, hope vanquished as the country has moved towards greater government involvement in the economy. According to the Asia Society Policy Institute, state-owned enterprises (SOE’s) in China account for nearly 85% of sector revenue for key industries like defense, electricity, shipping, and others SOE’s. In autos, chemicals, construction, steel, and similar industries, SOE’s account for 46% of revenue. This level of government involvement and China’s economic heft have complicated global economic and trade relations.  

Much of what is happening today regarding trade — tariffs, retaliatory tariffs, quotas, non-tariff barriers, other policies thwarting trade — run counter to the global trade rules. And instead of multilateral organizations, regional trading blocks are emerging with their own rules. Moreover, governments in mixed-market democracies seem to be taking a page from China’s book regarding government involvement in economies. For example, the Trump administration has taken, or plans to take, ownership positions in several U.S. companies since taking office last year. Companies like U.S. Steel, IBM, Westinghouse, and Intel now have the federal government as part owners.  

The evolution of economic systems and the interplay between governments and economies have implications for Nebraska agriculture. Agriculture and food security are particularly sensitive areas for countries’ internal politics. These sensitivities inform and guide their positioning on trade rules. International institutions helped overcome these sensitivities in the past and paved the way for greater agricultural trade. The breakdown of international rules could reverse these gains. Moreover, the greater propensity of governments to intervene in economies means politics and leaders’ whims have greater influence in determining the flow of goods as opposed to markets. This means more volatile markets, disrupted and discontinuous trade, greater uncertainty, and the loss of access to markets. None of which is good for agriculture.