Trade negotiations can have major impacts on agriculture sector, according to Purdue leader

Washington D.C. – As the Trump administration works to make good on their vow to pursue new trade deals across the world, agriculture has been among the most impacted industries to these negotiations, according to Dominique van der Mensbrugghe, Ph.D., director of the Center for Global Trade Analysis at Purdue University.

Van der Mensbrugghe was a featured speaker at a Farm Foundation forum held at the National Press Club in Washington, D.C. The forum, titled, “U.S. and Canadian Perspectives on Trans-Pacific Trade,” was held on March 14. 

“United States agriculture is at a crossroads,” said van der Mensbrugghe. “Unresolved trade negotiations have put agriculture in a very unique spot.” 

“The U.S. is on a new trajectory,” he explained. “We have to decide where the best spot to land is.” 

Van der Mensbrugghe explained the United States has had a downward trending pattern in tariffs since the post World War II era, regardless of major agreements. 

“Since the onset of the North American Free Trade Agreement (NAFTA), Canadian and Mexican shares have nearly doubled,” van der Mensbrugghe said. “In 1995, Canada and Mexico had 14 percent of the shares, and today they are up to 30 percent, not to mention, the Chinese share nearly tripled from five percent to 14 percent.” 

Trade agreements and negotiations

Van der Mensbrugghe explained since 2017 when Trump initiated tariffs on aluminum and steel imports, Canada, Mexico and other established U.S. trading partners retaliated. 

“The problem with this tariff is the retaliation didn’t necessarily hurt those businesses,” he said. “Agriculture and other industries caught the brunt of these retaliations.” 

Van der Mensbrugghe explained the dissolution of NAFTA as a worst-case scenario when it comes to trade agreements. 

“Following the negotiations surrounding NAFTA in recent times, it has been discussed what would happen if the agreement were to dissolve,” he said. “We would revert back to a most favored nation tariff rates.” 

He noted the dissolution would also cause uncertainty about special regimes such as dairy quotas and estimates of reversions would be based on a complicated methodology.  

USMCA

Van der Mensbrugghe also explained the yet-to-be-ratified United States, Mexico, Canada Agreement (USMCA), which consolidates NAFTA. 

“This agreement would alter the access to our main markets,” he said.

Van der Mensbrugghe said the main market access changes are auto content for duty-free access is raised to 75 percent, 46 percent of auto content must be produced in factories where workers are paid at least $16 per hour, and import quotas for products such as poultry and dairy are expanded. 

“There are also a number of changes not directly linked to market access,” said van der Mensbrugghe. “These include an extension of copyright to 70 years, new measures for the digital economy including removing duties from music and eBooks, as well as protection of internet companies. The deal also improves transparency in import and export licensing.”

TPP

“The Trans-Pacific Partnership (TPP) has been another point of discussion amongst trade analyst,” van der Mensbrugghe said. “The plan was implemented in late December, and six of the 13 agreeing countries have ratified it so far.” 

He noted Australia, Brunei, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam are all part of the partnership. 

“The United States had reason to join this agreement,” he said. “It would have reduced the tariff on U.S. agriculture products in places like Japan and Singapore where U.S. products have 19 and 16 percent tariffs, respectively.” 

“The partnership also would have eliminated agricultural export subsidies and transparencies of sanitary and phytosanitary measures and other non-tariff trade measures, such as biotech products,” said van der Mensbrugghe. 

Best-case scenario

“The persistence of a trade war will overwhelm the potential positive impact of USMCA,” van der Mensbrugghe said. 

He noted the results of these scenarios are based on a number of assumptions but are likely to be very robust. 

“Results reflect medium-term impacts after adjustment and ignore costs,” he noted. “Results do assume normal investment behavior.” 

He commented despite assuming normal investment behavior, a different tariff environment in NAFTA could impact investment and changes to deep supply chains. He also stated a volatile tariff environment could dampen the appetite for investments. 

“However, farmers could face worst at the dissolution of NAFTA and a more acute trade war,” he commented. 

“The best outcome for farmers is the ratification of USMCA, the U.S. rejoining TPP and reversion to pre-2017 tariffs,” van der Mensbrugghe said.

Callie Hanson is the assistant editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.