Trump trade policy: Playing a game of chicken with American agriculture

President Trump recently reassured farmers that he had their backs on trade at the annual meeting of the American Farm Bureau Federation. Farmers voted overwhelming for Trump in 2016 and judging from the warm reaction he received on Monday, he remains popular. But from comments I heard at the convention, there is much unease over his trade policies despite his reassurances to the contrary.

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. On day No. 3 of his presidency, Trump withdrew the United States from any engagement with the TransPacific Partnership, an agreement that he called “a potential disaster for our country” but one that the Farm Bureau had estimated would increase annual U.S. net farm income by $4.4 billion. Withdrawal from TPP will not just cause U.S. agriculture to lose out on the potential benefits of increased trade. In fact, at least to a modest extent U.S. exports are likely to fall as TPP competitors such as New Zealand, Australia and Canada gain favorable access to markets like Japan and Vietnam, markets in which up to now U.S. agricultural exporters have enjoyed substantial market shares.

{mosads}The next item on Trump’s trade reform agenda was the renegotiation of NAFTA, an agreement that Trump has called “the worst trade deal in the history of the country.” However, NAFTA has been very good for U.S. agriculture, with agricultural exports to Canada and Mexico topping $39 billion in 2017. Not withstanding, the president’s rhetoric, after 14 months of what appeared to be stressful negotiations, the new NAFTA (the U.S.-Mexico-Canada Agreement or USMCA) 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 (the benefits from which have been estimated to be small, increasing NAFTA exports by about 1 percent). Nor was it that the new agreement contains many modernization features (many of which had been negotiated in the TPP agreement). 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 other trade actions initiated by the Trump administration. In response to the so-called Section 232 tariffs imposed against exports of steel and aluminum to the United States, Canada and Mexico have imposed retaliatory tariffs against a variety of U.S. agricultural products including pork and cheese. Those actions are estimated to reduce U.S. agricultural exports by as much as $2 billion, more than offsetting any gains associated with the changes embedded in the new NAFTA agreement.

The threat by the Trump administration to withdraw from NAFTA if USMCA is not approved by Congress is even more troubling. Analysts suggest that such a withdrawal from NAFTA could cost U.S. farmers almost $9 billion in lost exports. Upping the ante to achieve passage of USMCA could be viewed as a high-stakes negotiating ploy, but the consequences of failure would be hard felt by U.S. agriculture.

Finally, there is the Trump administration’s on-going trade war with China. 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, by themseleves annual U.S. soybean exports to China have averaged over $12 billion in recent years. About one of every four acres planted to soybeans in the United States is exported to China — at least, 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.

{mossecondads}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 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.

Joseph Glauber is a senior research fellow at the International Food Policy Research Institute and a visiting scholar at the American Enterprise Institute. He previously spent 30 years at the U.S. Department of Agriculture, where he served as chief economist from 2008 to 2014.