Chad Hart has some basic advice for farmers looking at developments on the trade front — this is all very good news for farmers, but don’t get too carried away with blind optimism.
“This is all about stability,” the Iowa State University ag economist says.
There were two big trade items announced in the past couple of weeks. The first involved an agreement reached on changes to the United States-Mexico-Canada Agreement (USMCA) that satisfied Democrats who hold the majority in the U.S. House of Representatives. Those congressional leaders had been negotiating on items involving labor and safety issues.
House Speaker Nancy Pelosi (D-Calif.) said for months that she expected a deal to get done, but it would take time.
That time was Dec. 19, when the deal was approved by House.
Some House Democrats were upset that Republicans in the Senate, who had criticized Democrats for the long delay in
USMCA approval, announced they would not vote in the Senate until January. Still, the agreement is expected to be approved.
The second item was the announcement by the administration of a so-called “phase one” trade deal with China. After more than a year of an all-out trade war between the two nations, the phase one agreement warded off new tariffs that had been scheduled to go into effect Dec. 15, and would hopefully lead to negotiations on a more complete and formal trade deal. Administration officials said as part of the preliminary deal, China agreed to buy $40 billion a year in agricultural goods.
Both are good news, Hart says. But he also offers some caution.
Hart says the USMCA is essentially an update of the North American Free Trade Agreement, which was already a pretty good deal for most farmers. There are good things for dairy producers regarding sales in Canada, but other than that there is no reason to think the USMCA will dramatically increase agricultural exports or prices. What it does, Hart says, is provide some stability.
“We already had minimal to zero tariffs,” he says of trade with Canada and Mexico. “It’s hard to improve on that.”
On China, he says anything that stops new tariffs from going into place and which lowers the temperature on the trade war is a good thing. But he says that, as of last week, economists and farm organizations had not actually seen the language in the agreement and it appears the market had already factored in the agreement.
“You could argue that we’re going back to where we were before,” he says. “I can’t say we’re better off than before the trade war.”
But the mix of products being traded will likely be different. For example, China may import the same dollar amount worth of U.S. agricultural goods as before, but the volume may not be as large because it may include more meat and high-value items instead of grain and lower-value commodity items.
The hope is that the two announcements may mean 2020 ends up being more about trade stabilization or improvement than about trade destruction, Hart says.