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No Early Resolution Seen for U.S., China Trade Tariffs, Economist Says

The trade tariffs are keeping farmers and economists up at night.

OMAHA, Nebraska -- Farmers already know that trade uncertainty affects them. 

A trade dispute with China is currently costing soybean producers about $2 a bushel, a former chief economist for the USDA told lenders at the National Agricultural Bankers Conference in Omaha, Nebraska, on Monday.

Yet, there is good news, too, on trade in the new U.S. Mexico Canada Agreement (USMCA) that could replace NAFTA if it’s approved by Congress, said Joseph Glauber, the former top USDA economist who is now a senior research fellow at the International Food Policy Research Institute.

“I think you could hear a collective sigh of relief by everyone on October 1 when it was announced that we had reached an agreement with Canada,” Glauber said at the Omaha meeting organized by the American Bankers Association. Canada’s commitment to an updated NAFTA followed Mexico’s. It opens some new markets for U.S. dairy exports to our northern neighbor.

Glauber said the new agreement has better ways to resolve trade disputes than the old NAFTA. And it doesn’t put up new trade barriers to existing food exports between the three countries. The main benefit is that it preserves market access for U.S. farmers under the old NAFTA and it did not create new seasonal barriers to exports — something Florida farmers wanted but was opposed by western fruit and vegetable producers, he said.

The U.S. exports about $40 billion worth of food to Canada and Mexico, and those nations ship a similar amount to the U.S., mainly seasonal produce, as well as feeder pigs from Canada and feeder cattle from Mexico.

By the time changes are phased in 19 years from now, USMCA will add about $275 million in new dairy, poultry, and egg exports to Canada, Glauber said.

“You’re talking about a sizable increase, but if you look at overall to the world market, it’s small,” Glauber said. “It’s not going to have a very big impact on U.S. markets.”

Any benefits from the new NAFTA are swamped by U.S. tariffs on steel and aluminum, which Mexico and Canada are countering with their own tariffs against U.S. pork, dairy and processed foods,

Glauber said, adding that he hopes that will get resolved soon.

A more long-term issue could be China’s tariffs on U.S. soybeans, part of the broader trade dispute between China and the U.S.

As a result, China buys more soybeans from Brazil than before the dispute began, and the U.S. is exporting more soybeans to other destinations, especially the European Union.

All of this changing the seasonal patterns that did exist in soybean trade, when China would buy from the U.S. for about six months, then from Brazil and South America in the other six months.

Now, with China no longer buying from the U.S., it “means somebody has to hold those soybeans longer than they would otherwise,” Glauber said. “If you look at the overall aspects of these tariffs, they’re very large, and who’s paying for it? Not Brazil.” Brazil currently has transportation congestion, but U.S. farmers are getting lower prices and paying to store soybeans.

Due to other export markets, the loss of China for U.S. soybean exports hasn’t been as bad as you might expect, he said.

“That’s good, but the bad news is there’s that price differential,” he said, referring to higher prices paid in Brazil. Those South American soybean prices are capped by the value of U.S. beans plus China’s tariff on those beans. “We’re looking at $8 prices vs. $10 prices,” he said.

Glauber said he is even more concerned about long-term effects of the trade dispute. It’s sending signals to Brazil to bring more land into production of soybeans, he said

“My real concerns are not just new area going into production but also development of infrastructure,” he said. If Brazil improves its transportation infrastructure for soybeans, it will become even more competitive.

In response to a question from the audience, Glauber said he doesn’t expect an early resolution to the U.S.-China trade dispute. “Hopefully, I’m wrong,” he said.

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