Washington Insider: Trade Policy Warning

This week The Hill is carrying a letter from a former USDA official who suggests that despite the President’s assurances to the Farm Bureau’s annual meeting “that he had their backs on trade,” members are beginning to display “much unease.” The writer, who is reporting reactions from producers at the recent annual membership meeting, has impressive policy credentials. He is Joseph Glauber, a senior research fellow at the International Food Policy Research Institute and a visiting scholar at the American Enterprise Institute. Glauber also was for 30 years a USDA economist and served as chief economist from 2008 to 2014. Glauber says that any thoughts that “candidate Trump’s anti-trade campaign rhetoric would cool when he assumed the presidency were dashed in the first week after his inauguration,” when he pulled the U.S. out of any engagement with the Trans-Pacific Partnership, an agreement that the American Farm Bureau Federation had estimated would increase annual U.S. net farm income by $4.4 billion. Glauber argues that withdrawal from TPP will cost potential benefits of increased trade as TPP competitors such as New Zealand, Australia and Canada gain favorable access to markets like Japan and Vietnam—markets where U.S. agricultural exporters have built substantial market shares. The next item on the president’s early trade agenda was the renegotiation of NAFTA, an agreement Glauber thinks has been very good for U.S. agriculture as ag exports to Canada and Mexico topping $39 billion in 2017. Glauber says that after 14 months of what appeared to be “stressful negotiations,” a new NAFTA emerged that “ended up looking a lot like the old NAFTA with relatively small changes in the agricultural provisions.” The good news was not really that that there was promise of additional access to Canada’s dairy, poultry and eggs sectors with resulting small benefits. Nor was it the new agreement’s modernization features. Far more significantly, the new agreement maintained the tariff concessions that had been negotiated in 1992 under the original NAFTA that substantially expanded access to Canadian and Mexican markets for U.S. agricultural producers. However, even the benefits from the original and new NAFTA agreements are currently being compromised by the administration’s “so-called Section 232 tariffs imposed against exports of steel and aluminum to the United States and the retaliatory tariffs Canada and Mexico are imposing.” He thinks those actions likely reduce U.S. agricultural exports by as much as $2 billion, more than offsetting any gains associated with the changes embedded in the proposed new agreement. Also, the threat by the administration to withdraw from the “new NAFTA” if it is not approved by Congress is even more troubling and could cost U.S. farmers almost $9 billion in lost exports, he says. Upping the ante to achieve passage of USMCA could be viewed as a high-stakes negotiating ploy, but it also means that the consequences of failure that “would be hard felt by U.S. agriculture.” Finally, he commented about the administration’s on-going trade war with China and notes that over the past eight years, China has been the top export destination for America’s farm products, accounting for about one-fifth of U.S. agricultural exports. For example, annual U.S. soybean exports to China have averaged over $12 billion in recent years, with harvests from one of every four acres planted to soybeans in the United States exported to China — or, at least was, before China slapped tariffs on soybeans last July in response to U.S. tariffs on many of China’s exports to American consumers. Since then U.S. soybean exports have been forced to find new markets, at sharply discounted prices. The chief beneficiaries have been soybean farmers in Brazil and Argentina who received higher prices and are estimated to have planted an additional 8 million acres of soybeans this fall in response to increased demand from China for their crops. With the recent resumption of talks between China and the U.S., China has begun to purchase U.S. soybeans again, however only in limited quantities and with an uncertain future for further U.S. exports--pending resolution of thornier trade issues like intellectual property protection, investment practices and other structural issues. The challenge that confronts the Trump administration now is how to resolve legitimate trade concerns without permanently damaging the longer-term growth trajectory for U.S. agricultural exports to China. The farm sector is in its fourth year of relatively moderate crop and livestock prices and lower farm incomes. Exports have been the one bright spot in the agriculture outlook and producers are understandably concerned about the current direction of trade policy. What some would call hard bargaining by a president who considers himself the ultimate dealmaker, others view as a game of chicken in which U.S. agriculture may end up paying a heavy price. Glauber doesn’t share any details about what he thinks the specific future policies should be, but clearly thinks that a warning about future policy risks is in order. In addition, he clearly thinks the trade policy debate is one producers should continue to watch very closely as it intensifies, Washington Insider believes.