Global trade has been a valuable tool for farmers and ranchers for decades. We do produce more food in this country than we can consume, and the world offers a big market. Of late, we’ve been reminded that trade can be a fickle issue when politicians take on specific agendas, but let’s get past the immediate news of tariffs and those tit-for-tats that have filled the evening news.
On a grander scale, this administration has changed course over what has been done in the past. And while trade is big news, perhaps some of the new tactics have flown under the radar. The biggest change is the idea of moving from multilateral to unilateral agreements.
The United States has operated under a range of multilateral agreements — with the North American Free Trade Agreement being a lead example. That agreement is still mostly intact, but it has been revised into the U.S.-Mexico-Canada Agreement and awaits approve in all three countries. Is it the last multilateral agreement for the country? Looks like it.
The Trump administration is embarking on what appears to be a single-country, one-at-a-time deal-making approach, which may offer long-term benefits but can also be more complicated to accomplish. Take the Trans-Pacific Partnership as an example. This agreement included the U.S. and a range of other countries in the Pacific Rim that were looking at a trade deal and offered benefits for all sides.
In the previous administration, one benefit of TPP was that it was a kind of blocking action against China in the region. Leaders in President Donald Trump’s camp walked away from talks on TPP — which has gone on to be approved, and is now circling back to deal individually with every Asian country to get “great” deals for the U.S.
From my perspective, this approach throws global ag trade into a kind of new black hole of confusion. Global trade impacts prices you get on the farm, and any kind of uncertainty can cause big headaches — even if you’re good at laying off risk in the markets.
The unilateral process can get good deals with those countries, but that takes time, and a recalcitrant Congress won’t make it easier. Meanwhile, trade does go on, often with tariffs and other sanitary-phytosanitary issues to be worked out on an individual basis.
One customer, easy sale
Unilateral trade deals can be good for business, once passed. They often come after some hard negotiating, and in the end, both sides usually get something going. The U.S. is challenged right now — not because of unilateral deals, but because traders worked to fill the needs of one big customer and didn’t mind the store for other buyers.
China was an easy sale. They sucked up — depending on the year — soybeans, corn and sorghum. But what about other markets? China was a big buyer, make no mistake; but due to a changing trade relationship, and internal alterations in the demand for goods, thanks to everything from African swine fever to consumer tastes, those big buying days may be over. And when there’s an “easy buyer” out there, other sellers show up, too.
Loss of a big market like China combined with a significant shift in trade deal policy will have deeper ramifications on ag markets for the long term. Sellers need to seek other buyers, and they are. For farmers, when it comes to trade, developing a risk management program that aggressively searches profitable forward-pricing opportunities (and they do appear) will become the norm.
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