Trump's Trade Reality

 

February 12, 2020

Dear Editor,

Economists at the American Farm Bureau estimated that the Trans-Pacific Partnership (TPP) would have provided American producers over $4 billion annually in increased sales, but Trump withdrew the U.S. from the agreement. The 11 remaining countries formed a new TPP without the United States. This allowed Canada and Australia to sell wheat and beef to Japan on more favorable terms than the United States. Trump had lost markets for U.S. producers and desperately needed to negotiate an agreement with Japan to fill the hole he had created. However, the U.S.-Japan agreement does not completely cover what the U.S. had gained in the original TPP, and we lost short term and potentially long-term markets to Canada and Australia during the two years we were negotiating with Japan. Thus Trump was only able to partially fill the hole he had created.

The North America Free Trade Agreement's (NAFTA) biggest flaw was the lack of a requirement for Mexico to raise its labor standards. This error has impacted immigration and moved U.S. jobs to Mexico over the last 25 years. Trump's negotiated United States-Mexico-Canada Agreement (USMCA) did not correct this error. House Speaker Nancy Pelosi and Richard Neal's nine member committee negotiated an increase in Mexico's labor standards. The success of those negotiations resulted in a dramatically improved USMCA. Nancy's USMCA moved the three countries toward Fair Trade with improved labor standards for Mexico, additional environmental commitments, decreased power for multinational corporations, and increased benefits for the middle class in all three countries.


The U.S.-China Phase 1 Agreement culminates two devastating years for American producers. Trump had to use $28 billion in taxpayer dollars to prevent a complete wreck in the agricultural economy due to lost markets in China. Even with $28 billion from the U.S. taxpayers, American agriculture is still experiencing record bankruptcies and suicides not seen since the devastating 1980s. Grain prices were on the low end of the price cycle when Trump slapped tariffs on China and they retaliated in kind against American agriculture. However, we generally move from the low end of the price cycle to the high end when two major weather disasters occur and supply is reduced. The drought in Australia and the very wet spring in the U.S. would have moved us to higher prices, but the increased supply due to lack of demand from China prevented that from happening. Trump substituted two very bad years, in regards to price, for what could have been two years of decent prices. What did we gain from this tremendous sacrifice?


Trump emphasizes that the Phase 1 Agreement states that China will buy $40 billion in ag products for each of the next two years, much more than they have ever bought before. China emphasizes that per the agreement they will buy to fill their market needs, at global competitive prices as required by the World Trade Organization (WTO). During the two years of the tariff war with the United States, China has diversified their sourcing of agricultural products and has assured these sources that they will continue to buy from them. It appears highly unlikely that China will buy $40 billion per year in ag products from the U.S. in the next two years. To enforce the $40 billion per year, Trump would have to increase tariffs on China.

This would likely lead to a decline in the stock market prior to the election, which Trump does not want to occur. Thus, after two devastating years, we are right back where we were before tariffs, with China buying to fulfill their market needs at competitive prices. Once again, Trump's rash actions dug a hole for American producers, and this time Trump claimed victory by simply stopping the digging. Of course, he could start digging again if he attempts to enforce the agreement with additional tariffs.

Sincerely,

Ron de Yong

de Yong was Director of Agriculture for Montana for over nine years, taught agricultural policy and economics at Cal Poly State University for seven years, and operated a family farm in Kalispell for over 30 years.

 

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