US-Japan trade deal – win, lose, or draw?

On the campaign trail in 2016, then candidate Donald Trump had a lot to say about trade deals. Since taking office, Trump has delivered on the promises to take the United States out of “bad trade deals” such as the Trans-Pacific Partnership (TPP) and negotiate new and improved ones with key trading partners. This “America First” approach has led to antagonized trading partners, escalated trade wars, and tariff after tariff in the Trump trade saga.

Posted 10/10/19

By Melissa Anderson

The trade policy may have finally reached a turning point as negotiations with Japan have resulted in a minor trade deal being signed that focuses on agricultural products. The year-long negotiations between the two countries has resulted in an agreement that is essentially a bilateral version of TPP with trade benefits that the United States previously had with Japan under TPP.

United States Department of Trade confirmed that “when the agreement is implemented by Japan, American farmers and ranchers will have the same advantage as CP-TPP countries selling into the Japanese market.” North Dakota’s political delegation has had positive statements in regards to the signing.

“I am extremely pleased to see tariffs being reduced or eliminated and quotas being expanded,“ North Dakota Department of Agriculture Commissioner Doug Goehring said. “I am also happy that this trade agreement aligns with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in tariff rate reductions over the same timeline. This is very beneficial for American agriculture and our North Dakota farmers and ranchers.”

North Dakota Senator John Hoeven released this statement on the newly completed trade deal, “This agreement is welcome news for our farmers and ranchers as it opens up the Japanese market to more than $7 billion in U.S. agriculture products,” Hoeven said. “Not only that but it will put increased pressure on China to reach an agreement. Now, we need the House to pass the USMCA, which has strong support in the Senate, so we can get it in place and provide additional certainty for our farmers, ranchers and other industries.”

Gov. Doug Burgum attended the signing of the U.S.-Japan Trade Agreement and the U.S.-Japan Digital Trade Agreement at the White House on Monday, October 7. Burgum had similar sentiments to Hoeven on the trade deal between the two nations.

“These trade agreements with Japan are strengthening our relationship with a key ally while opening the door to further trade deals with the island nation,” Burgum said.

The optimism of the politicians is only carried so far by advocates for agricultural producers such as the National Farmers Union. The organization has been a vocal opponent to the President’s trade policy, stating that key trading relationships have been disrupted, causing a reduction in U.S. farm exports at a time of already low farm income. National Farmers Union has been actively lobbying the Administration to end the tariffs that have been implemented.  The absence of trade deals  and the tariffs have resulted in other countries placing their own tarriffs , targeting the exports that are the product of family farmers, threatening the future of rural America.

“The new agreement with Japan is unlikely to reverse the downward economic trends for U.S. family farmers and ranchers. The administration has said that the agreement could result in an additional approximately $7 billion in agricultural sales to Japan. However, tariff reductions for key products such as beef, pork, and ethanol will take place over up to 15 years, so that additional $7 billion in sales will take some time to materialize. Further, U.S. agricultural products will have to compete with similar products from major agricultural producers such as Canada and Australia who have a head start in the Japanese market due to CPTPP. Thus it is unclear how quickly U.S. products will be able to gain market share. While its good to see that the administration is thinking about the needs of farmers, the increase in sales to Japan will not make up for the more than $12 billion in lost sales to China due to the administration’s trade war. American family farmers and ranchers need farm policy that ensures a robust safety net and protects domestic and export markets.” Jenny Hopkinson, Senior Government relations representative for National Farmers Union said.

In North Dakota, Farmers Union (NDFU) has more than 50,000 member families across the state and is committed to the advancement of family farm and ranch agriculture. NDFU President Mark Watne shared his belief that while it’s good to have negotiations occurring, there is still a lot more work to be done in securing trade that is more than just “status quo”.

“When we stepped away from the Trans-Pacific partnership, what we did is we enabled other countries to negotiate a whole lot of deals that really disadvantaged us,”  Watne said. “This appears to be a fix to not being part of the Trans-Pacific Partnership.”

Watne believes that the real tell for how successful this newly signed trade agreement will be is how the markets respond to its passage. With a preliminary announcement made in late September and the official signing only taking place this past Monday, it may still be too early to gage reactions as more details emerge.

“You start with hype, and you start with negotiations so it’s a little hard to read.  The key is when something actually gets signed and watch to see if the market responds. I’m a little nervous that we didn’t get much reaction in the market place, but it still could happen a little bit further down the road,” Watne said.

Market reaction should take place within the week of the signing. One reason why there may be a lack of reaction has to do with the instability of being a trading partner with the United States. Watne explained that when a country becomes unreliable as a trading partner, negotiations for trade agreements are hindered as other countries become leery of the risk involved.

With progress being made with Japan to bring the United States back onto a somewhat level playing field with other exporters for these products, such as Australia, New Zealand and Canada, there is the hope that this will lead to improvements in trade not only with Japan but other markets as well.

“It shows that we have a willingness to try and get to some common ground on trade, but I will say that we tend to think that if we simply open up the U.S. market and if we don’t negotiate all aspects, that it comes back to haunt us down the road,” Watne stated.

The current trade policy environment is more free trade rather than fair trade. Farmers Union, as an organization, believes that fair trade holds the potential to increase family farm profitability and U.S. food security.

“Farmers Union has always been on the terminology of fair trade. I’ve never heard so many people use fair trade now as the translation of free trade,” Watne shared.

Part of this understanding of fair trade is that it will hold everyone on more equal footing. From having currency to labor laws being equitable and making sure all trading partners are playing by the rules, these will help to create a fair agricultural trade environment within the global market.

“Unless you are willing to bring a lot of countries with you, it’s really hard to win a trade war on your own. I think that there has got to be a lot more work in coming up with fair trade that benefits both partners instead of this approach of ‘we are going to flood each other with low price commodities’,” Watne explained.

Much like Watne and Farmers Union, CHS, Inc. believes in the concept of fair trade as it gives free and open market access for their farmers’ products and what they grow. Having that equal footing on the global market against other countries is important for CHS as it is a leading cooperative marketer of grain. The company moves more than two billion bushels within the United States and to roughly 60 countries every year. Having trade agreements that make them competitive is crucial not only for ag producers but businesses like CHS.

“It gives them more access to demand. There are multiple markets for those products- Japan being a very important one and particularly in that region. I think this will have an impact on the flow of product and have a positive impact on prices,” Brian Schouvieller, Senior Vice President of Global Grain Marketing at CHS, Inc., explained.

While the details of the agreement are still to be sifted through, one aspect of the trade agreement that Schouvieller finds of note is how quickly it was brought together.  On average the United States is able to negotiate bilateral trade agreements in just under two years. During presidential election years agreements are spurred to a quicker signing, taking about 40 percent less time than non-election years. Add on the two year trade war with China cutting significantly into agricultural exports and the inclement weather causing havoc for the 2019 growing season, and the situation for family farms couldn’t be worse.

“Members of the USDA and negotiating team understood this to be a big problem that left the U.S. farmer out of contention for that type of business, and between our administration and the Japanese administration they got a deal done quickly and that will definitely benefit American agriculture,” Schouvieller said.

Farmer co-ops like CHS are hopeful that with the Japan trade talks being successful, partial agreements with China may be possible as well. Schouvieller is anticipating that agriculture may lead the way on the conversation between China and the U.S. as easier issues will be dealt with first rather than trying to tackle the harder areas of contention between the two nations.

Post Comment