Milling & Baking News -- July 3, 2018 - 20
Uncertainty percolates in ag
markets as tariffs draw near
WASHINGTON - Uncertainty continues to roil agricultural markets as uneasy
producers warily monitor escalating developments between the United States
and trading partners around the world.
With trade between vital North American
partners already in flux, the United States
now stands at the precipice of what could
develop into a full-scale trade war with China, with further implications to follow.
Four months ago, 11 countries signed
the Comprehensive and Progressive
Agreement for Trans-Pacific Partnership.
The agreement seeks to reduce non-tariff
and tariff barriers to trade, establish an
investor-state dispute settlement mechanism and set rules on intellectual property, labor and the environment. The
so-called T.P.P.-11 followed the United
States' withdrawal from the 2016 original
version of the agreement, and it has yet to
be ratified. The United States did not take
part, but President Donald Trump briefly
flirted with negotiating a re-entry into the
partnership, which would spell relief for
"Putting it simply, joining T.P.P. is the
best way to avoid a potentially devastating loss of wheat sales to Japan," said Michael Miller, chairman of U.S. Wheat Associates and a farmer from Ritzville, Wash.
"If the United States joins T.P.P., U.S.
wheat should be able to compete on a
level playing field with Canadian and
Australian wheat, which will soon have
a major advantage once T.P.P. is implemented," he said in April. "That would
keep U.S. wheat sales that currently represent 50% of Japan's total wheat imports
competitive in this crucial market."
Farms could see income drop dramatically from trade standoffs. In Ohio, for example, the top four destination countries
that receive the state's $3.9 billion in annual
agricultural commodity exports include
Canada (38% of Ohio exports), the European Union (15%), Mexico (13%) and China
(8%). Americans for Farmers & Families
said retaliatory tariffs could cost Ohio $241
million and could lower the average Ohio
producer's net farm income by 59%.
Later in March, the White House revealed plans to initiate tariffs on imports
of steel (25%) and on aluminum (10%).
These tariff proposals contained a national security component and indicated
other industries deemed vital to U.S.
national security could see protection
down the road. By the end of the month,
Brazil (source of 13% of U.S. steel
20 / July 3, 2018
Milling & Baking News
imports), South Korea (10%), Australia
and Argentina were granted exemptions.
Stocks initially tumbled, and protests
were swift from a broad range of American industries. China immediately threatened curbed import of U.S. soybeans.
Canada, the source of 16.1% of U.S. steel
imports, said the tariffs would be "unacceptable" and planned retaliatory tariffs
on $16.6 billion in U.S. goods. The European Union announced a 25% tax on
imports of U.S. corn. The European Commission president said the charges would
be subject to a World Trade Organization
Top 10 U.S. soybean
exports in 2017
Source: National Oilseed Processors Association
legal challenge. Last month, motorcycle
stalwart Harley-Davidson said some
manufacturing would move overseas to
avoid retaliatory tariffs.
Hardball with China
A few weeks later, President Trump, as
part of his push for China to reduce by
$200 billion the $375 billion U.S. merchandise trade deficit, proposed 1,333 separate
tariff lines on about $50 billion worth of
Chinese products, an amount proportionate with the economic harm to the U.S.
economy by China's "unreasonable technology transfer policies," the U.S.T.R. said,
referring to an investigation that found
China had coerced U.S. companies into
transferring technology and intellectual
property to domestic Chinese enterprises.
A revised list released June 15 by the
U.S.T.R. split the products into two lines:
The first levies an additional duty of 25%
on 818 product lines covering about $34
billion worth of imports from China.
Those tariffs are set to begin July 6.
Among the hundreds of products: elevators and conveyors; machinery for lifting,
handling, loading, unloading, haymaking,
harvesting and threshing; poultry incubators and brooders; machines for cleaning,
sorting or grading seed, grain or dried leguminous vegetables; machinery used in
the milling industry or for the working
of cereals; and many other machines and
parts used in the manufacture and packaging of ingredients and food products.
The second set of 284 proposed tariff
lines covers about $16 billion worth of
imports from China (including agricultural or horticultural projecting or dispersing equipment, seeders, planters,
transplanters and fertilizer distributors),
and will undergo further review.
Almost immediately, Beijing issued
its own list comprising 106 products totaling $50 billion in U.S. goods that will
be subject to increased tariffs of around
25% should the U.S. government follow
through on its proposed new tariffs.
The principal U.S. agricultural export
targeted by China was soybeans. U.S.
soybean growers have a lot to lose in the
event of a trade war. China accounted for
61% of U.S. soybean exports valued at
more than $27 billion in 2017.
Trade groups representing producers
and their families have decried the potential effects of retaliatory tariffs.
"As a soy grower, I depend on trade with
China," said Davie Stephens, vice-president of the American Soybean Association
and a soybean producer from Wingo, Ky.
From the administration's perspective,
changes in China's behavior will "fully
open up its markets to U.S. products,"
Secretary of Agriculture Sonny Perdue
wrote in a June 25 editorial. He related the
story of Chinese nationals, intent on reverse engineering, digging up geneticallyengineered seeds from an Iowa corn field
as one of "countless pieces of evidence
in the case against China for intellectual
property theft and unfair trade practices."
Mr. Perdue defended President Trump's
understanding "that our farmers feed, fuel
and clothe this nation and the world."
"There is legitimate anxiety when you
see prices depressing," Mr. Perdue said on
June 28. "But farmers are resilient; they understand China has not been playing fair.
The president has told me to tell (farmers)
he's not going to allow them to bear the
brunt of these trade disruptions and to
make a plan for mitigation unless we are
able resolve the trade issue. That's obviously what farmers would prefer. They
would like to have trade. They want to sell
their products, they're the most productive in the world. They've come to depend
on exports, and that's their first choice. But
if they don't, they have to pay their bills
like everyone else." MBN
bakingbusiness.com / world-grain.com