WASHINGTON: As the United States imposes an additional round of tariffs on US$16 billion worth of Chinese imports, global trade relationships are changing in ways that could eventually leave American farmers out in the cold.
Farmers for Free Trade, a bipartisan campaign fighting US President Donald Trump’s tariffs, has surveyed farmers throughout the United States about the trade war’s impact. The common refrain has been that this group is worried about the long-term consequences.
While American farmers may be able to sustain their businesses in the near term, they are scared that markets where they have worked tirelessly to build relationships are now being won over by Brazil, Canada, Argentina, or Russia – among other competitors.
No aid package will bring back those markets. And even if the trade war ended tomorrow, the damage to important and lucrative relationships with buyers has been done.
Farmers, of course, aren’t the only group that will be affected by any trade war. But their plight is important to understand because they were early targets of punitive tariffs, and those impacts are now being felt in associated industries.
TRADE WAR OPENS OPPORTUNITY FOR OUTSIDE MARKETS
Trump too often oversimplifies the complexities of policy issues to the detriment of those who elected him.
Today, global trade is about more than tariffs. It includes a complex, interconnected network of suppliers, regulators, inspectors, shipping routes, and value chains. It’s built on relationships, cost, and reliability.
Most importantly, competition is fierce and growing. Additionally, while tariffs can be turned on and off quickly, building – or reclaiming – trade relationships can take decades. That is what’s at stake.
The turbulence and uncertainty caused by Trump’s trade war has created a geo-economic feeding frenzy. US competitors from Argentina to Ukraine are aggressively working to eat into markets once dominated by American farmers.
Brazilian soy farmers have seen opportunity – and fortunes – in the pains of their American counterparts. Farmers in Brazil’s countryside are swapping crops like sugar cane for soy, hoping to cash in and put Brazilian soy on Chinese dinner tables. And this bet is already paying big dividends.
Brazilian soybean exports to China rose to nearly 36 million tons in the first half of 2018, up 6 per cent from a year ago, according to Reuters. In July alone, they surged 46 per cent from the same month a year earlier.
In just two years, farmland used to grow soy exploded by 5 million acres in Brazil. Trump’s trade war is literally changing the global trade landscape – a trend will only be exacerbated when new tariffs go into effect on Thursday. And Brazilian farmers aren’t the only competitors reaping the rewards.
Tensions between the United States and Mexico are pushing Mexican wheat buyers to find new sourcing.
Argentine, Russian, and Ukrainian wheat growers, who are able to offer cheaper prices, are stepping in to fill the void and are selling wheat to Mexico flour millers to be used in everything from bread to tortillas.
Russia surpassed the United States as the world’s leading wheat exporter in 2016 and has only distanced itself from the competition since.
Meanwhile, US wheat exports globally have plummeted by 21 per cent in just the first half of 2018.
AMERICAN FARMERS ARE SUFFERING
The anxiety stemming from Trump’s multifront trade war is weighing down exports as well as future business opportunities. The uncertainty has forced delegations from China, India, Italy and Spain to cancel meetings with American farmers that are organised annually to place orders and develop relationships.
American farmers are a tough bunch who are willing to sacrifice and know how to overcome challenges.
They have persisted through climate change, market fluctuations, floods and droughts; the last thing they need is to contend with hardship and stress because of bad policy from their own government. But they aren’t the only ones starting to suffer as the result of Trump’s misguided trade policies.
Less demand for US exports means soy, wheat, corn, and other crops sit in storage rather than being loaded on train cars, trucks, and eventually ships. The decrease in volume will transform supply chains that have been built and refined to maximise efficiency between the United States and Asian buyers.
Bulk shipping managers are already repositioning fleets to take advantage of emerging trade routes and expanding opportunities.
The trend serves as further evidence that the trade landscape is evolving while the United States turns inward and doubles down on a protectionist strategy.
It also demonstrates for trade opponents that global competition will not wait for the United States, and abdicating America’s leadership – as the Trump administration did when it withdrew from the Trans-Pacific Partnership – only empowers adversaries and leaves American farmers and manufacturers at a disadvantage.
The decline in exports and squeeze on farm budgets will eventually make it difficult for farmers to cover bills, mortgages, loans, and planting costs for next year’s crop. That will extend the ripple effect to financial institutions, real estate and future crop production.
Every week that passes closes more doors to US farmers and unlocks new opportunities for their competitors. It’s unclear whether what has already been lost will ever return.
Trump would be wise to abandon his failed strategy and quickly reclaim the mantle of global trade leadership before the United States finds itself on the outside looking in.
Trevor Kincaid was the Deputy Assistant US Trade Representative for Public Affairs in the Obama administration and is a member of the Washington International Trade Association.