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Will trade policy progress bring increased prospects?

Recent achievements show progress, but agriculture will be watching to see if these deals translate into gains.

Bradley D. Lubben

January 31, 2020

6 Min Read
Logistics and transportation of Container Cargo ship and Cargo plane with working crane bridge in shipyard at sunrise, logist
REASONS FOR OPTIMISM: There are numerous ongoing trade issues and discussions, but these four agreements provide some optimism for U.S. ag export prospects.thitivong/getty

There has been substantial progress on the U.S. trade front in the past two months, with implementation of agreements with Japan and the European Union, the U.S. approval of the United States-Mexico-Canada trade agreement, and the signing of a phase one trade agreement with China.

These achievements represent significant progress in the trade environment and qualify as a political victory for the administration and its negotiating strategy. But with the new agreements in place, agriculture and other sectors will be watching to see if that translates into economic progress and increased trade opportunities.

Much already has been said about trade policy and the ongoing trade conflicts, including space in this column over the past several months. But with the culmination of multiple efforts coming to fruition in the past couple months, it is good to review the progress and wonder about the prospects ahead.

First stage with Japan

The U.S.-Japan Trade Agreement was signed in October and implemented in January. The agreement provides for tariff reductions and quota expansions to improve market access. A companion agreement on digital trade addressed digital aspects of international commerce, such as cross-border data flows.

The two agreements have been described as the first stage of broader negotiations toward trade liberalization between the two countries. The agreement covers only a portion of U.S.-Japan trade volume, but provides for lower tariff rates on most U.S. agricultural products.

The new agreement provides the U.S. much of the improved trade access it would have garnered in the 12-country Trans-Pacific Partnership agreement before it withdrew in early 2017. As Japan and the 10 other countries worked toward implementing that agreement minus the U.S., and as Japan signed a separate trade agreement with the EU, U.S. exports to Japan began to suffer as other countries gained improved access and reduced tariff rates.

Under the new agreement, U.S. exports of agricultural products to Japan could substantially grow, regaining the lost market share of the past couple of years and adding some of the Japanese market growth expected with reduced trade barriers.

Bigger share of EU market

An agreement reached in 2019 promises the U.S. a larger share of the EU market for non-hormone-fed beef and should lead to growing export opportunities for U.S. beef producers. Of note, however, this was not a new effort to improve trade access, but only the latest compromise on a trade dispute that dates back to the 1980s.

After the EU (then the European Commission) implemented restrictions on added hormones in livestock production and imports, the U.S. complained and ultimately filed a case through the World Trade Organization in 1996.

The U.S. won the WTO case, but was not able to convince the EU to drop its ban. A decade of WTO-authorized retaliatory sanctions led to a decade of compromise and promises of increased access to EU markets for non-hormone treated beef, but still fell short of full relief for U.S. beef exporters.

The current agreement promises a bigger share of the EU market for non-hormone-treated beef to the U.S. than what was realized in the past decade, if it is not challenged by other countries that also look to provide the EU with non-hormone-fed beef and took some of the market previously promised to the U.S.

Broader trade negotiations also are ongoing between the U.S. and the EU, but still have a long way to go with a number of contentious issues, including whether agriculture is even part of the discussion.

If ag is included, issues such as the treatment of biotechnology, geographical indicators, and protections for food production, and sanitary and phytosanitary standards will add to the difficulty and likely a long road ahead to any significant breakthroughs.

USMCA continues trade flow

After House and Senate approval in December and January, President Donald Trump signed USMCA on Jan. 29, paving the way for implementation of the update to the North American Free Trade Agreement. The agreement was awaiting final approval in Canada as of the time of this writing before going into effect, but promises continued trade flows and improved opportunities among the three countries.

Touted improvements for U.S. agriculture include increased trade access and prospects for dairy, wheat, poultry and eggs, as well as common language on biotechnology and other regulatory issues. By some accounts, ag may be one of the biggest winners in terms of the USMCA, while the agreement as a whole may have only a modest effect on the overall economy and may even tighten up some existing trade flows.

The biggest win, in fact, may not be that USMCA was approved, but that its passage put off the risk that the U.S. would withdraw from NAFTA as was threatened early in the negotiating process.

One analysis of the ag impact of USMCA conducted in early 2019 suggested that the U.S. would see only a small expansion in ag trade of about $454 million under a USMCA agreement, but would see a potential loss of about $12 billion if the U.S. had withdrawn from NAFTA (compared to a total value of about $40 billion in U.S. ag exports to Canada and Mexico in 2018).

Greater access to China

Trump and Chinese Vice Premier Liu He signed the phase one agreement between the U.S. and China on Jan. 15, promising substantial increased access and trade flows from the U.S. to China in the coming year and further discussion of ongoing conflicts and trade issues.

Accounts of the agreement point to China averaging about $40 billion per year in purchases of U.S. agricultural goods over the next two years, which would be almost double what China had been purchasing each year before the trade conflict started in 2018.

But the same agreement also includes language to suggest the increased purchases would be subject to demand needs and competitive price levels. Trade observers and market participants still are trying to figure out how much of the promised purchases could effectively come to fruition during 2020 and 2021.

It is more than a bit ironic that the market-oriented U.S. had a goal of achieving targeted levels of trade, while the state-controlled Chinese perspective was to promise increased trade within the constraints of market signals.

The purchase commitments are really only a promise of increased access. The phase one agreement did not fundamentally address the underlying issues that led to the ongoing trade conflict, including additional trade barriers, technology transfer and business investment issues.

But it did at least temporarily forestall a deepening trade conflict and set the stage for additional talks to address these broader issues. Whether progress can be made on the larger issues and can lead to an end of the U.S.-Chinese trade war remains to be seen.

There are numerous ongoing trade issues and discussions to keep track of, including broader talks with Japan, the EU and China, as well as other talks with India and more. But the four agreements discussed above provide some optimism for U.S. ag export prospects.

The first official assessment of this new ag trade environment is likely to come in the ag outlook discussed by USDA at its annual ag outlook forum Feb. 20-21. If these new trade prospects translate into actual increased trade volume, ag markets and income prospects may begin to show some additional strength and promised improvement in the coming months.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.

About the Author(s)

Bradley D. Lubben

Lubben is a Nebraska Extension associate professor, policy specialist, and director of the North Central Extension Risk Management Education Center in the Department of Ag Economics at the University of Nebraska-Lincoln. He has more than 25 years of experience in teaching, research and Extension, focusing on ag policy and economics. Lubben grew up on a grain and livestock farm near Burr, Neb., and holds degrees from UNL and Kansas State University.

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