Delta Farm Press Logo

Trade war losses create need for new U.S. export markets

Agriculture is unjustifiably taking center stage as a bargaining tool.

Brad Robb, Staff Writer

November 26, 2019

4 Min Read
Beef producer Richard McMinn, right, McMinn Farms, Trenton, Tenn., liked the news Andrew Muhammad, professor, Department of Agricultural and Resource Economics, University of Tennessee, highlighted about anticipated increases in beef exports to Asia in 2020, the United States' leading destination country for U.S. beef exportsBrad Robb

In 2018, the United States exported nearly $140 billion worth of agricultural goods, 20 percent of total U.S. ag production. In 2019, this figure is expected to fall almost 5 percent due to the trade war with China.

Soybean farmers lost 22 percent of their overall export value because of trade war tensions, but along with other commodities, found new markets. However, these new markets were not enough to offset lost sales to China.

Andrew Muhammad, professor, Department of Agricultural and Resource Economics, University of Tennessee, talked about trade agreements and the implications of tariffs to a small group of growers and ag industry representatives at a meeting in Trenton, Tenn., recently.

"China has been our largest soybean export customer. Soybeans and other U.S. commodities have been diverted to other countries, but soybeans have taken the brunt of the trade war pain," Muhammad says. "China has gone from being the United States' second leading market with purchases comparable to Canada to our sixth leading market with purchases comparable to South Korea."

Locally, Vietnam is the third largest export market for Tennessee ag exports behind China and Canada — thanks mainly to cotton. "Tennessee is one of the few states where Vietnam is in the top five for U.S. state-specific exports," Muhammad says. "Our state moves $2 billion in ag exports each year, which ranks Tennessee twenty-first nationally in ag and forestry exports."

Related:Understanding Mid-South land values

Trade agreements and a 2020 outlook

The biggest drivers in U.S. ag exports have been the negotiated trade agreements with individual countries. There has not been a single trade agreement entered into by the United States that did not benefit U.S. ag exports. Why? Muhammad says these agreements lower tariffs on ag products, particularly in destination markets where tariffs had traditionally been high.

Despite not having a current trade agreement with China, just having them as a member in the World Trade Organization brought their tariffs in line with tariffs in other countries. "This has led to huge increases of U.S. exports to China, even though it has been overshadowed somewhat by the lack of a specific U.S./China trade agreement," Muhammad says.

Based on positive talks that may be leading to the finalization of the United States-Mexico Canada Agreement and the potential resolution of the trade war with China, the USDA is actually forecasting an increase in U.S. ag exports in 2020. "The USDA numbers suggest an increase of $2.5 billion, to $137 billion of total U.S. exports of agricultural products," Muhammad says. "Projections are even positive for China, despite the lack of a trade deal."

The biggest factor driving that positive forecast is African swine fever in Asia. "U.S. pork exports are projected to be $6.3 billion, up $800 million next year," Muhammad says. "Exports of soybeans for feed will be up by $400 million; beef exports are expected to increase more than $300 million, mainly due to a trade agreement with Japan, our leading destination country for U.S. beef exports."

Trade war not just about ag

From the perspective of the current U.S. administration, the trade war had nothing to do with agriculture. "It was solely about two things: (1) national security concerns related to steel and aluminum imports and (2) intellectual property issues in China," Muhammad says. "When U.S. companies set up shop in China, they are forced to share technologies and enter into partnerships with Chinese companies."

Muhammad believes the U.S. may not have overestimated the importance of the U.S. market to China's exports but did underestimate the importance of China to U.S. agriculture. "According to the White House, President Trump realized the one way to negotiate with China was to impose tariffs and then use those tariffs as a negotiation tool," Muhammad says. "It was an advantageous move for the Chinese government to retaliate against U.S. agriculture, which leaves us where we are today."

Implications of tariffs and trade deficits

How do tariffs make U.S. exports less competitive in the Chinese market? One example has been U.S. corn. "Before the trade war, a $5 million shipment of U.S. corn to China would cost them about $5.5 million, based on the then 1 percent tariff," Muhammad says. "That Chinese import company today would pay an additional $1 million for that same shipment when the 26 percent tariff is slapped on, raising the cost of that corn shipment to $6.8 million."

The U.S. trade deficit with China is the United States' largest bi-lateral trade deficit. Back in the 1980s, the deficit between the two countries was relatively low but has increased to nearly $400 billion. "If you look at trade deficits with our other partnering countries, the deficits between the U.S. and those countries comes nowhere to our deficit with China," Muhammad says. "There's not a single critic, on the far right or far left, who would say China has not been a 'bad actor' in the international trade arena, especially in issues of currency, state trading enterprises, and intellectual property rights. However, some would argue that a trade war may not be the way to bring China in line."

The trade war has put a strain on U.S. ag export sales. The question remains, could U.S. agriculture recover fully when and if trade tensions are resolved? Given the new uncertainty, if the U.S. and China do not return to that trading partner status quo, new and emerging markets for agriculture may never be more important.

About the Author(s)

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like