Business Stability Is Elusive Despite Trade Pacts

Most businesses thrive on, or at least aspire to, predictability and certainty. One businessman recently said that he would rather have several predictable “OK” years in a row than dramatic gains followed by troughs of uncertainty. In our fast-moving economy, where “disruption” has become a positive term in the tech world, predictability is often hard to come by.

The barge business is especially sensitive to uncertainties beyond its control. The two major sources of uncertainty in recent years have been the weather—always unpredictable—and trade policy, where actions of governments can at least have some effect.

The multi-generational effort that is still ongoing to tame the Mississippi and other major rivers with locks and dams is an attempt to reduce some forms of weather-related risk and bring a measure of predictability. Even so, droughts, floods, ice gorges and hurricanes still bring plenty of uncertainty. As any river engineer or barge operator can tell you, Mother Nature can never be completely controlled.

Many indicators point toward another year of flooding and higher-than normal river levels. Parts of the Mississippi River are already at or near flood stage, and the soils of the upper Midwest are so saturated from last year’s rains that even a slight increase in rainfalls could bring further floods. Forecasts are for higher than normal rainfalls. Much will depend on snowpack accumulation, which is at the halfway point.

The other source of instability in recent years has been the tariff and trade wars between the U.S. and China. The signing of an agreement between the two antagonists is being touted by the Trump administration as a big win and was looked forward to eagerly by businesses of all sorts, who want a return to higher levels of trade predictability.

Unfortunately, the Phase I agreement doesn’t bring that stability. While forestalling further tariffs, it leaves in place existing added tariffs on $360 billion worth of Chinese goods. Under the deal, China has supposedly promised to buy massive amounts of U.S. goods and services, including farm goods.

Various figures have been put out about the dollar amounts of these purchases. But there have been questions about the language in the deal, which allows China to purchase according to market conditions. (The Wall Street Journal and other business publications have pointed out the irony of China, a Communist centrally planned economy, appealing to market conditions while the capitalist U.S. relies on government intervention to aid its farmers and businesspeople.) Agricultural futures did not rise on news of the deal as details emerged, indicating skepticism among farmers and their customers.

As Ken Eriksen, senior vice president-agribusiness intelligence at IHS Markit, points out in this issue, even if China does come through with substantial purchases of U.S. farm goods, including soybeans, the volumes will likely be coming through the pipeline in the third quarter of this year, right around the closure of the Illinois Waterway from July through October.

It’s only fair to point out that amid all of this uncertainty for barge  operators, signs of strong bipartisan support for water infrastructure funding are hopeful, if underreported by the media and overshadowed by distractions like the impeachment trial.