September 27, 2018
This week, both the United States and China added to the growing tariff list, with the U.S. putting a 10 percent tax on $200 billion worth of Chinese goods, and China retaliating with tariffs of 5 to 10 percent on $60 billion worth of U.S. products, including a number of meat products including some bovine offal, some frozen beef products and more.
According to reports, China nixed plans of a trade talks with the U.S., and President Donald Trump is threatening to add even more tariffs on $267 billion worth of Chinese imports if Beijing joins in the retaliation. Analysts believe the trade war could affect economic growth through 2020. Fitch Ratings lowered its forecast for next year's Chinese economic growth by 0.2 percentage points to 6.1 percent, and next year's global economic growth by 0.1 percentage points to 3.1 percent.
Many agriculture groups and economists have voiced concern over the president's tariffs.
"The trade war is now a reality," Fitch Chief Economist Brian Coulton said in a news release. "The recently announced imposition of US tariffs on a further USD200 billion of imports from China will have a material impact on global growth and, even though we have now included the 25 percent tariff shock in our GEO baseline, the downside risks to our global growth forecasts have also increased."
““Early on, the president instructed me, as secretary of agriculture, to make sure our farmers did not bear the brunt of unfair retaliatory tariffs. After careful analysis by our team at USDA, we have formulated our strategy to mitigate the trade damages sustained by our farmers. Our farmers work hard, and are the most productive in the world, and we aim to protect them.” Sonny Perdue, secretary of agriculture
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U.S. Secretary of Agriculture Sonny Perdue announced details to assist farmers in response to trade damage from what he calls "unjustified retaliation by foreign nations."
R-CALF USA has expressed support for the tariffs.
"My organization represents cattle producers across the country. Our industry has been harmed by trade cheating and trade deficits due in part to subsidized imports and lack of country of origin labeling. We support the president's actions on China technology theft as well as a future comprehensive strategy to increase domestic producers' market share of the US market," said R-CALF USA CEO Bill Bullard.
The Trump Administration put together a short-term relief strategy to protect agricultural producers while they continue to work on "free, fair, and reciprocal trade deals to open more markets in the long run to help American farmers compete globally."
USDA has authorized up to $12 billion in programs, consistent with World Trade Organization obligations.
"Early on, the president instructed me, as secretary of agriculture, to make sure our farmers did not bear the brunt of unfair retaliatory tariffs. After careful analysis by our team at USDA, we have formulated our strategy to mitigate the trade damages sustained by our farmers. Our farmers work hard, and are the most productive in the world, and we aim to protect them," Perdue said.
These programs will assist agricultural producers to meet the costs of disrupted markets:
• USDA's Farm Service Agency will administer the Market Facilitation Program to provide payments to corn, cotton, dairy, hog, sorghum, soybean, and wheat producers starting September 4, 2018. An announcement about further payments will be made in the coming months, if warranted.
• USDA's Agricultural Marketing Service will administer a Food Purchase and Distribution Program to purchase up to $1.2 billion in commodities unfairly targeted by unjustified retaliation. USDA's Food and Nutrition Service will distribute these commodities through nutrition assistance programs such as The Emergency Food Assistance Program and child nutrition programs.
• Through the Foreign Agricultural Service's Agricultural Trade Promotion Program, $200 million will be made available to develop foreign markets for U.S. agricultural products. The program will help U.S. agricultural exporters identify and access new markets and help mitigate the adverse effects of other countries' restrictions.
The first Market Facilitation Program payments began on Sept. 4 with a second payment period planned if needed. To apply, farmers must finish fall harvest to measure yields. Eligible applicants must have an ownership interest in the commodity, be actively engaged in farming and have an average adjusted gross income of less than $900,000 for tax years 2014, 2015 and 2016.
"President Trump has been standing up to China and other nations, sending the clear message that the United States will no longer tolerate their unfair trade practices, which include non-tariff trade barriers and the theft of intellectual property. In short, the president has taken action to benefit all sectors of the American economy — including agriculture — in the long run," Perdue said in a press release. "It's important to note all of this could go away tomorrow, if China and the other nations simply correct their behavior. But in the meantime, the programs we are announcing today buys time for the president to strike long-lasting trade deals to benefit our entire economy."
The plan includes $4.7 billion in payments to corn, cotton, soybean, dairy, pork and sorghum farmers. The rest is for developing new foreign markets for American-grown commodities and purchasing more than two dozen select products, including certain fresh fruits and vegetables, nuts, meat and dairy.
Soybeans and pork both took a direct hit early on when China included them in the imposed $34 billion tariff list. Soybean growers will get the largest checks, at $1.65 per bushel for a total of $3.6 billion. China is the world's leading buyer of American soybeans, purchasing roughly 60 percent of the U.S. crop. But since Beijing imposed a 25 percent tariff on soybean, imports prices have plunged.
But corn and wheat farmers are questioning and even challenging the government payment plan. Chandler Goule, CEO of the National Association of Wheat Growers, said the USDA assumed U.S. wheat would be sold to China this year when it made its calculations. But the assumption is flawed.
China typically makes its requests for American wheat between March and June. U.S. wheat farmers have sold, on average, 20 million bushels of wheat to China over the past three years. But none came this year according to Goule.
"I am very certain that we will not sell any wheat to China this year," Goule said. "The window we sell in has come and gone."
But there is a much bigger picture behind the tariffs. Michelle Erickson-Jones, co-owner of Gooseneck Land and Cattle, Broadview, Montana, pointed out in testimony to Congress that U.S. agriculture, as a whole, depends on trade.
"American agriculture is a tremendous global marketing success story. We export 50 percent of our wheat and soybeans, 70 percent of fruit and nuts, and more than 25 percent of our pork. We are also the top exporter of corn in the world. Exports account for 20 percent of all U.S. farm revenue and we rely on strong commercial relationships in key markets including Canada, Mexico, Japan, the European Union and, of course, China — the second largest market for U.S. agriculture, accounting for nearly $19 billion in exports in 2017. U.S. agriculture exports also support over 1,000,000 American jobs," Jones said.
While the unfair trading practices are felt throughout the industry, Jones said the impact of the tariffs will outweigh them, using an example of the price of steel.
"Earlier this year we priced a new 25,000-bushel grain bin to increase grain storage capacity on our farm. The price was 12 percent higher than an identical bin we had built in 2017," Jones said, adding that the price again jumped another 8 percent a few weeks later.
"While one singular example is a small sum of money in the big picture, adding up those small singular examples shows the real and substantial increase to agriculture and rural main street," Jones said.
And there are other bigger losses in the ag industry with the tariff war, Jones shared, referencing China's 25 percent retaliatory tariff against U.S. wheat, virtually closing the door on wheat sales. In 2016 and 2017 China was the fourth largest U.S. customer for wheat.
"For Montana, other commodities are also being hurt. Our producers are already suffering from the 25 percent import tariff on American pork and are bracing for the impacts on beef. Mexico has also targeted these two sectors in response to the steel tariffs," Jones said.
While the mitigation package offers some relief, producers are calling it a short term fix, following nearly five-years of falling commodity prices.
"Nationwide, income is at a 12-year low, so any assistance that may help farmers is greatly appreciated: We lost more than 150,000 farms to consolidation and financial failure in the U.S. during the decade that ended in 2017," American Farm Bureau Federation President Zippy Duvall shared in a statement.
"The additional burden of tariffs on the goods we sell to China, Canada, Mexico and the European Union has been more than many farmers can bear. The aid gives us some breathing room, but it will keep many of us going only a few months more. The real solution to this trade war is to take a tough stance at the negotiating table and quickly find a resolution with our trading partners. "
Senate Republican Conference Chairman John Thune, R-S.D., told agricultural trade officials that he is "really frustrated" with the state of the United States' agricultural industry, including the fact that the Trump administration hasn't negotiated bilateral trade deals.
"I've heard that now for the last couple of years, since we decided to pull out of TPP, that we're working on bilateral trade agreements, but I don't see any evidence that we are," Thune said during a Senate Agriculture Committee trade hearing. "Now maybe there are discussions going on in a back-channel way that are not visible to the rest of us, but this strikes me, at least, these are huge missed opportunities from an economic standpoint and a trading standpoint."
National Cattlemen's Beef Association President Kevin Kester said producers benefit from skipping retaliatory tariffs and focusing on science-based agreements like KORUS.
"Less than a decade ago, U.S. beef exports to South Korea were severely limited by a 40 percent tariff and a host of non-tariff trade barriers. KORUS tore down those barriers, helping turn South Korea into a leading destination for U.S. beef. In fact, exports to South Korea accounted for over $1 billion annually over the last two years," Kester said.
Products purchased will be distributed by Market Facilitation Program to participating states, for use in TEFAP and other USDA nutrition assistance programs including National School Lunch Program.
• AMS will buy affected products in four phases. The materials purchased can be adjusted between phases to accommodate changes due to: growing conditions; product availability; market conditions; trade negotiation status; and program capacity.
• AMS will purchase known commodities first. By purchasing in phases, procurements for commodities that have been sourced in the past can be purchased more quickly and included in the first phase. F