Tariffs: Producers want trade over aid
September 20, 2018
Tariff: a tax or duty to be paid on a particular class of imports or exports.
In an effort to level the U. S. trading field, President Trump has levied tariffs on some trading partners, most notably Canada, Mexico and China.
How will this affect producers, especially beef producers, at the grass-roots level?
“I will qualify I may be in a camp of few people,” John Nalivka said, “but I’ve never been overly concerned.” Nalivka has 35 years’ experience in U. S. trade, including working for the United States Department of Agriculture in Washington, D.C. He is also a cattle rancher.
“I think we will get these trade deficits fixed. Rule number one on China trade is, it’s a communist country and they can’t have people hungry, so regardless (of what they have to do) they’ll make sure people aren’t hungry.
“China is already coming back on (buying) soybeans. They’ve bought about all they can from somewhere else. China has been a communist country for six decades,” Nalivka said. Food is leverage for communist countries, so China will make sure it keeps a good supply.
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“Trade in itself is demand,” Nalika said. “All buyers look for the best price, but the currency exchange rate gives the final cost. There is the absolute price, the exchange price, and the tariff price.”
Nalivka said multi-level trade deals are bad. Bilateral trade deals are best, he said.
“I was in a meeting in Washington where they presented the Trans-Pacific Partnership. It was 10,000 pages. I asked those guys ‘what’s in it?’ and they talked a lot of trade jargon, but I never got an answer.
“Trade talks are usually so complex no one can understand, but Trump talks in the average person’s language. And he understands the exchange rate.
“I was at the USDA in Washington for the 1984 deal with Japan on beef and orange juice. That was a good deal.” Nalivka said. "Make no mistake, the beef in the USA is the most efficiently produced and the highest quality in the world."
He said the scare that there will be a tariff ripple effect which is passed on to consumers is bunk. “That excuse might be used for a price increase.”
Nalivka said trade negotiation with Mexico and Canada is good, with deals close to being finalized, and China can’t stay out.
“Non-tariff trade barriers are awful for the livestock industry and should be shut down.”
Many agriculture leaders, farmers and ranchers are supportive of the tariffs, and although aid has been marked for some producers, they agree what is needed is trade.
Ag economics professor Brad Lubben from the University of Nebraska at Lincoln is less optimistic.
“The economic analysis doesn’t support tariffs,” Lubben said. But he said existing trade agreements have drawn much criticism from producers, “So if trade is good we need more agreements,” and Trump is trying to get them. Lubben said Trump’s strategy is confrontational and aggressive, but his strategy is to ride the losses in the short run to get good trade and prices in the long run. “Of course there is an old adage that when you get to the long run everyone is dead,” Lubben said.
Lubben said although the damage from the trade war may take time to feel, “commodities will be affected across the board. Hogs missed some China trade. Pressure on total demand may cause some roll-over and substitution effects.”
Lubben said once a buyer turns to another source or switches to another commodity, it is difficult to recover that buyer. “If there’s not a direct loss then there are foregone effects,” Lubben said. “In general we see loss across the board. We don’t win back that market overnight.”
Lubben said no trade policy changes without approval of the World Trade Organization. “WTO is a time consuming process to get a country to change practices.” Lubben said imposing tariffs for unfair practices without adhering to WTO guidelines is fruitless.
“So we’re between a rock and a hard place,” Lubben said. “We hope for short-term pain, but the gains should be worth the pain.”
Lubben said the governments aid package is helpful, and the $12 million compensation package will help some, but total farm production is $350 to $400 million. For instance, money earmarked for the USDA to buy more beef may not be big enough to offset lost beef export opportunities.
Reaction from farmers and farm groups has been the same, what is they want is trade – not aid.
“While we’re grateful and commend the administration for its action to help us, what pork producers really want is to export more pork, and that means ending these trade disputes soon,” said National Pork Producers Council president Jim Heimerl.
“Farmers want predictability of export markets over aid. The announcement on a preliminary agreement with Mexico is a critical step in the right direction,” said senator Pat Roberts (R-KS), chairman of the Senate Agriculture Committee.
President Trump’s plan promises a better economy for farmers and ranchers once other countries agree to U. S. plans.
Dairymen are skeptical the government aid package will cover their loss. “The dairy-specific financial assistance package provided by USDA, centered on an estimated $127 million in direct payments, represents less than 10 percent of American dairy farmers’ losses caused by the retaliatory tariffs imposed by both Mexico and China,” said National Milk Producer Federation President Jim Mulhern.
In July, USDA has announced $4.7 billion will be distributed to corn, cotton, dairy, hog, sorghum, soybean and wheat producers now, with a total planned package of $12 billion.
On August 4, the USDA restated initial aid in its emergency plan to help farmers and ranchers impacted by retaliatory tariffs will consist of $4.7 billion in payments. The federal government said it will purchase up to $1.2 billion in commodities unfairly targeted by unjustified retaliation. A third part of the aid will consist of up to $200 million in spending to help develop foreign markets for agricultural production.
Soybean farmers will receive the most money from tariff aid. According to Ag Web, soybeans dropped 20 percent as a result of tariff scares.
“After careful analysis by our team at USDA,” Agriculture secretary Sonny Perdue told the Business Insider on Aug. 27, “we have formulated our strategy to mitigate the trade damages sustained by our farmers.” That same day, the U. S. and Mexico struck a trade deal paving the way to replace the North American Free Trade Agreement. The new deal will be called the United States Mexico Trade Agreement. President Trump has said repeatedly that NAFTA is bad for the U. S. Mexico has promised to buy as many U. S. farm products as possible.
By Sept. 4, according to the USDA information site, Agriculture Secretary Perdue had launched a trade mitigation package for producers damaged by unjustified trade retaliation from foreign governments. This one has some help for beef producers.
The Agricultural Marketing Service will administer a food purchase and distribution program to purchase up to $1.2 billion in commodities to redistribute through programs such as the Emergency Food Assistance Program and child nutrition.
Beef will be purchased through AMS each quarter for four quarters beginning Oct. 1. Since beef is already purchased for nutrition assistance programs, it is one of the commodities which will be purchased first as qualified USDA suppliers and specifications already exist for meat. By purchasing known commodities first, AMS can procure commodities that have been sourced in the past for maximum speed and impact. The target purchase amount to beef in the first quarter is $14.8 million. AMS will issue pre-solicitation notices through GovDelivery for targeted commodities, including beef.
Direct payments will be made through the Market Facilitation Program for corn, cotton, dairy, hogs, sorghum and wheat. Sign up for MFP is now open at http://www.farmers.gov/mfp. Payments will be issued on 50 percent of a producer’s total production.
“These programs will allow President Trump time to strike long-term trade deals to benefit our entire economy, including the agricultural sector, in the long run,” Perdue said. “Farmers will tell you that they would always prefer to sell a good crop at a fair price, rather than receive government aid, and that’s what long-term trade deals will accomplish. But in the meantime, President Trump has promised that he will not allow American agriculture to bear the brunt of the unjustified retaliation from foreign nations. Today, we are putting the president’s promise into action.”
Producers are riding out the storm, hoping for more trade – not aid.