The intellectual property trade war is here to stay. When we first heard about the US leveling tariffs on China due to our large trade imbalance, I thought it would be cleared up quickly. When China offered to buy $50 billion of US ag, energy, and manufacturing a year I thought a deal would be struck immediately. What a big win it would be for President Trump. When the US rejected that offer it was clear this is not about trade imbalance. This is not a tariff dispute or a trade deficit issue. At the heart of the Chinese-US negotiations will be Intellectual Property.
When a country like China transitions from a underdeveloped nation to a developed economy, they experience high rates of growth. This is due to their population becoming more educated while more money is put into the system for infrastructure and other modern day improvements. Once a nation “catches up” with the other modern economies, growth is sustained by gains in innovation and efficiency. Both are a big part of this intellectual property dispute.
For an economy to grow as a developed nation, they need a system in place to encourage and foster innovation and gains in efficiency. Without it economic growth stagnates. That is what happened in the former Soviet Union in the 70s and 80s and also he East Asian “Paper Tigers” in the 1990s. China is at risk of the same fate. They need to create an economic system to incentivize entrepreneurship. If they can’t then their days of high economic growth and dreams of being the #1 global economic power are over.
China has cleverly found a way to “import” intellectual property to use it for their own gain. For foreign companies to use come to China for their inexpensive and plentiful labor, they have to have joint ventures with Chinese companies that get access to intellectual property. Reverse engineering is also an issue in China.
From where I sit the big questions are:
- Can China create their own innovations and efficiencies. Do they have the economic system in place to do it themselves?
- If China does not have a system that encourages and allows for innovation and gains in efficiencies, can their political system change to accommodate a new economic order?
- How long can the US and specifically President Trump fight this battle until a large chunk of his Ag voter base turns on him? Midterms are not that far away and he has to think of his own election. Farmers are not going to forget $8 beans and $3.50 corn
While the podcast does not have specific actionable trading recommendations, we do publish them in Turner’s Take Market Alert for spec traders and Turner’s Take Ag Marketing for hedgers. Want to know what to look for in the commodity futures markets? Take a listen to Turner’s Take podcast!
Craig Turner – Commodity Futures Broker
Turner’s Take Ag Marketing http://www.turnerstakeag.com
Turner’s Take Futures Spreads http://www.turnerstake.com
Subscribe to Turner’s Take Ag Marketing | 2018 Corn Outlook
Turner’s Take Ag Marketing | 2018 Corn Outlook - Turner’s Take Ag Marketing sees 2018 corn prices having a possible range from $3.15 to $4.50 given various acreage, supply and demand scenarios, with an end of season target price of $3.70. Find out more about how we determine the range of prices, our suggested marketing strategies, and our 2018 target prices.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.