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Branstad Appointment Raises Trade Hopes

June 13, 2017

Experts in Iowa-China trade see Gov. Terry Branstad’s arrival as U.S. ambassador in Beijing as a sign of good things to come for one of the state’s most important agricultural trade relationships.

Iowa is the nation’s leader in exports of corn, pork and livestock feeds, and ranks second overall among states in agricultural exports. China is Iowa’s third-largest export market, with a population of 1.37 billion and a growing middle class that wants a more protein-rich diet.

The future of Iowa’s lucrative trade with China became somewhat clouded with the 2016 election of President Donald Trump, whose campaign rhetoric criticized Chinese currency manipulation and promised a harder line on trade in order to protect American manufacturing jobs.

Those clouds are now clearing on both sides of the Pacific, according to Li Zhao, president of the Iowa-China Group, which counsels and assists Iowa businesses on trade with China.

“There was that uncertainty among Chinese businesses I spoke to,” Ms. Zhao said. “But the first real certainty was Gov. Branstad’s appointment as ambassador. The second was the 100-day plan. That put more assurance and certainty back into the trade relationship.”

The 100-day plan was announced after a presidential summit between Mr. Trump and Chinese President Xi Jinping in April. Appealing aspects of the plan for the American ag sector were China’s commitment to re-examining barriers to imports of American poultry and beef, and to rule on access for soybeans with eight genetic traits that have so far been barred. About one-fourth of Iowa’s soybean crop goes to China.

After the 100-day plan was announced, a joint statement was issued by the two countries on May 11, indicating plans to begin work on a longer-term, one-year plan.

New partnerships

China Iowa Group in March announced a partnership with Des Moines-based governmental relations consultancy LS2group to help Midwestern businesses pursue opportunities in China.

That partnership is already bearing fruit, according to Ms. Zhao and LS2group Principal Chuck Larson, a former state legislator and U.S. ambassador to Latvia.

“We have an array of clients that are interested in China – pursuing exporting to China or investing in China – and Li represented the other half of the solution that we needed, someone who understands the Chinese economy, government and how to execute on the ground in China,” Mr. Larson said.

He noted the vast majority of the businesses they are working with are in the ag sector, and most are interested in seeing markets reopened. The appointment of Mr. Branstad as ambassador has stoked much of the interest, because of his warm relationship with the Chinese president.

“We’re very excited because with Gov. Branstad’s appointment as ambassador to China, it creates  amazing opportunities for the businesses of Iowa,” Mr. Larson said. “It’s almost like having a trade representative in China who loves Iowa and is friends with the president of China. It doesn’t get much better than that.”

The partners’ tag team approach combines Mr. Larson’s deep-rooted knowledge of Iowa businesses and governmental relations with the China-Iowa Group’s understanding of China’s export laws, government and market.

“The market is so large from an ag perspective,” said Ms. Zhao, who was born in China and co-founded the group more than seven years ago after working in international trade. “The numbers for any American business are staggering, and as we’re seeing, the median income of the average Chinese [family] increases their ability to purchase proteins for their diet.”

The LS2group side of the team can also support Chinese companies interested in investing in Iowa. The opportunities for attracting investment from China are improving, Ms. Zhao said – a result of a China’s Going-Out strategy to encourage Chinese citizens to expand abroad.

“We’re seeing more and more Chinese companies, state-owned or private, making investments here in the United States,” Ms. Zhao said. “The first round of popular destinations are the coastal areas, but now the attention has shifted to the Midwest.”

Tough negotiators’

Iowa’s new governor, Kim Reynolds, wasted no time after her predecessor was sworn in as ambassador in announcing plans to lead a trade delegation to China July 19-28. She touted the delegation as the first to include all of Iowa’s major ag commodity groups.

“There is no better time than now to market and pitch our products in China,” Ms. Reynolds stated in announcing the trip. “Our relationship with the country is strong, and their growing middle class means increasing purchasing power and Iowa stands to gain significantly as a result.”

Not all of the conditions are perfect for an export opportunity in China. The Chinese economy will grow more slowly this year than in the recent past, according to a March report from Siva Yam, president of the USA-China Chamber of Commerce, and Paul Nash, a communications advisor to the group. It said China is transitioning to an economy driven by domestic consumption from one based on manufacturing and export-led growth.

The country also continues to suffer from overcapacity and speculation in real estate, and a lack of investment in improving productivity, quality and innovation.

The country also continues to suffer from overcapacity and speculation in real estate, and a lack of investment in improving productivity, quality and innovation.

“There has been too much reliance on directive from the government and uncontrolled overinvestment in basic manufacturing,” the paper states. The authors also raised concerns with China’s foreign investments, consisting primarily of long-term real estate speculations financed by short-term debt instruments, indicating they could create a financial time bomb.

Despite those concerns, the paper said the economic fundamentals sustaining development remain unchanged in China.

“United States companies will need to develop new strategies in order to maintain competitiveness and develop opportunities in China’s changing economy, and to successfully handle any changes or disruptions in U.S. trade policy,” the authors wrote.

Ms. Zhao and Mr. Larson say there’s a definite learning curve to entering a new export market, which they hope to ease for their clients.

“We’ll sit down and get a deep understanding of what their product or services are and their current market in the U.S., and then look at the market in China and assess what is the best opportunity,” Ms. Zhao said. “After we identify that opportunity, we will work with them to shape their market strategy and identify key partners they can work with to implement their strategy.”

Despite Mr. Trump’s anti-China campaign rhetoric, Mr. Larson believes his administration will focus on improving trade, not reducing it.

“Without a doubt, in my opinion, the Chinese are tough negotiators,” he said. “There are no ifs, ands or buts about it. But the Trump administration and the Department of Commerce are successful business people and skilled negotiators. They know how to get deals done.”