U.S. Trade Agreements: Everyone Needs a Win

Trade relations between the US and China are tense as both nations impose tariffs on imports. ( MGN/Pixabay )

President Trump needs some wins soon when it comes to trade, says Pro Farmer’s Jim Wiesemeyer. And other countries involved in current U.S. trade negotiations need it economically, too. Here's the outlook for resolution with Japan, China, Canada, Mexico and the European Union. 

Japan Trade Talks Continue
The U.S./Japan trade talks concluded on Tuesday with more talks ahead. Top trade officials from the two countries renewed their hope for striking a bilateral trade agreement focused mainly on goods and some services. Motegi said he hoped to reach good results in the talks "at an early stage," Reuters reported.

"The United States and Japan discussed trade issues involving goods, including agriculture, as well as the need to establish high standards in the area of digital trade," the Office of the U.S. Trade Representative said in a statement following a two-day meeting between U.S. Trade Representative Bob Lighthizer and Japan’s Economic Revitalization Minister Toshimitsu Motegi. 

USTR noted the U.S. “raised its very large trade deficit with Japan — $67.6 billion in goods in 2018.” Meanwhile Japan posted a trade deficit in the fiscal year ended in March, the first deficit in three years. March exports fell 2.4% from year ago, putting the deficit for the fiscal year ended with March at 1.59 trillion yen ($14.2 billion), according to the Ministry of Finance.

“During the trade talks, U.S. officials concentrated on agriculture provisions rather than controversial issues such as pharmaceutical pricing or currency manipulation. While the U.S. side wants an ‘early harvest’ to reduce its bilateral trade deficit, Japan will be unwilling to accept a one-sided deal where it cuts agriculture tariffs without getting anything in return,” Wiesemeyer says. 

“From the American side, [we heard] they want to reduce their deficit, and at the same time they have a lot of interest in the agricultural sector,” Motegi said. He added that the U.S. had not sought to raise issues that would take a long time to discuss. 

The bottom line? “After nearly three decades of subpar growth, Japan remains unable to break the doldrums despite aggressive fiscal and monetary policy actions,” Wiesemeyer says. “But structural reforms for Japan’s economy are needed, and a trade agreement would help. Growth has improved, but will remain around 1% without reforms.”

China Agreement is Near
Wiesemeyer says the best signal the U.S. and China may be getting closer to an agreement is mounting anxiety about the final language in the agreements. No matter what results, he says it won't please everyone. 

“Uncertainties include which U.S. farm commodities will be included in any accord, the quantity and/or dollar amount, and the time frame of any farm product purchase commitments. In Congress, some lawmakers likely have their press releases mostly written, saying ‘too little, too, late,’” Wiesemeyer says.

The U.S. pork and poultry industries continue to be a key focus in the trade talks. Reuters reported that China is likely to lift its ban on imports of U.S. poultry linked to the 2015 bird flu outbreak in the U.S. and may buy more U.S. pork, but the country is resisting requests from the U.S. to drop its ban on imports of ractopamine. 

“While the lifting of the ban on U.S. poultry is expected based on China's recent action to lift a similar ban on imports of French poultry, China is also said to be pushing for allowing its poultry products to enter the U.S., something that has been a sticking point between the two countries,” Wiesemeyer says.

Meanwhile, China’s economy grew 6.4% in the first quarter of 2019 versus a year earlier, beating analysts’ expectations. Wiesemeyer says Beijing needs some hopeful signs for its economy as it tries to reach a trade deal with the Trump administration despite pressure to lift conditions at home.

Chinese growth targets have been lowered to 6%, with emphasis on quality of growth and greater consumer dependence, he notes. The trade dispute has sparked monetary and fiscal stimulus.

“The improvement, some note, probably has more to do with all that stimulus cash than with any sudden increase in business confidence. And it’s unclear how long the cash can keep flowing,” Wiesemeyer says.

USMCA Completion Will Reduce Uncertainties
The completion of USMCA comes down to House Speaker Nancy Pelosi (D-Calif.) and when she’s ready for measure. Wiesemeyer expects the earliest vote to take place in late August or September.

The Mexican Senate will begin debate next week on the labor reform law it must pass under USMCA, says Ricardo Monreal, Mexican Senate’s majority leader. He says the goal is to pass the labor reforms by the end of the month.

Wiesemeyer says Democrats in the U.S. House of Representatives are waiting to see the reforms passed before they consider the new pact.

“U.S. growth will bolster the outlook for both Canada and Mexico when USMCA is ratified by all governments,” he says. 

Mexican President Obrador remains a wild card, however, and is noted for anti-U.S. rhetoric and larger role for government in the domestic economy.

“But he needs a win as well,” Wiesemeyer says.  

EU Agreement Looks Hard to Reach
Progress looks doubtful on agricultural negotiations with the European Union.

On Monday, the European Union approved its terms for negotiating a new trade deal with the U.S. but refused to include agricultural products in the talks.

The U.S. has long wanted more access to the EU's protected market for farm products. William Reinsch, a former U.S. trade official now at the Center for Strategic and International Studies, said Trump "gave agriculture away" when he agreed to focus U.S.-EU talks on non-automotive industrial products.

Leaving out agriculture is likely to hobble the negotiations at the outset, reported the Associated Press. However, Reinsch said there may be ways out of the mess by tackling farm trade in a later round of talks.

“I want to believe it, but don’t think it (resolution) will happen,” Wiesemeyer says.

The European Commission released a list of U.S. exports worth more than $22 billion that it wants to hit with retaliatory tariffs, including a wide range of farm goods that are considered targets. Last week the Trump administration released its own list of European goods to hit with levies.

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