Chilling risks from Trump’s tariff gambit

by Josh Sosland
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Josh Sosland

It is possible the gap between the agricultural sector’s aspirations for foreign trade and the reality of government policy is wider than at any time in nearly four decades.

On March 7, a coalition of mostly state wheat groups led by the National Association of Wheat Growers wrote U.S. Trade Representative Robert Lighthizer petitioning the Trump administration to reverse its earlier decision and join the Trans-Pacific Partnership. A day later the Trump administration made a major trade announcement, unveiling plans to initiate 25% tariffs on steel and 10% on aluminum. Late last week, President Trump announced plans to levy tariffs on about $60 billion of imports from China.

In writing Mr. Lighthizer, the wheat growers sounded alarm over what has been the single most dependable major market for U.S. wheat over the last 50 years — Japan. The groups noted that over a nine-year period T.P.P. will lower to $85 per tonne from $150 tariffs Japanese flour millers pay to import wheat from T.P.P. participants, including major U.S. competitors Canada and Australia. Meanwhile, U.S. tariffs will remain at $150 per tonne, leaving U.S. growers at a disadvantage. The groups cite representatives of the Japanese milling industry predicting that the $65-per-tonne cost difference will result in U.S. exports of wheat to Japan falling to about 1.35 million tonnes per year from 3 million presently.

“The agreement among the T.P.P. members will have a devastating impact in rural communities across the wheat belts of the Great Plains and the Northwest,” the groups said.

In the wake of the tariffs, agricultural groups have moved from concern about how T.P.P. may leave them disadvantaged to fear the agricultural sector is a likely target for retaliatory moves. Corn grower anxiety has risen after the European Union announced a 25% retaliatory tax on U.S. corn sales to the E.U. if the steel and aluminum tariffs proceed.

More vocal within the agricultural community has been the American Soybean Association, reflecting the extraordinary growth in trade of soybeans and soy products in recent years.

Between 1980 and 2000, soybean exports fluctuated around 800 million bus per year, before beginning a remarkable upward climb at the turn of the century. Soybean exports eclipsed 1 billion bus for the first time ever in 2000-01, 1.5 billion in 2009-10 and 2 billion in 2016-17. For perspective, keep in mind that U.S. soybean production averaged less than 2 billion bus per year between 1980 and 1995.

In the event of a trade war with China, which the Trump administration has accused of stealing U.S. intellectual property, soybeans and grains may be a retaliatory target. The stakes are high for the U.S. economy and staggering for the soybean sector. Soybean exports were valued at more than $27 billion last year. China alone accounted for 61% of U.S. soybean exports in 2017 and has been responsible for the dramatic growth in recent years.

Even before the China tariffs were announced, John Heisdorffer, president of the A.S.A., urged the president to “modify if not reverse” the decision to impose steel tariffs. Mr. Heisdorffer sought to dispel the idea that gains by Brazil in soybean trade to China would be offset by increases in U.S. soybean sales to other destinations. He warned that Brazil is continuing to expand its planted soybean acreage and already exports more than the United States.

Those who recall the ill-conceived grain embargo imposed against the U.S.S.R. in 1980 by President Carter understand the long-lasting, serious damage that may be caused by free-trade interference. Nearly 40 years later, the United States has not regained its preeminent position as an agricultural exporter, largely because of an embargo that lasted less than two years but tarnished the reputation of the United States as a reliable supplier. With these dangers in mind, persistent and vigorous advocacy for free trade and competition has never been more important.

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