According to former trade ambassador Darci Vetter, there is no hotter topic in ag right now than what’s going on with trade. Today Vetter works as General Manager, Public Affairs & Vice Chair, Agriculture Food and Trade Edelman, and she says the phrase “trade war” is the not best description for our trade policy. While we have a series of trade disputes, the “war” language is not helpful. With this weekend’s talks between President Trump and Chinese President Xi Jinping, Vetter shares her insights that there is no quick fix to return to our previous global trade norms.
“What’s important to note is that current trade tensions are changing the landscape for how U.S. agriculture is situated in the global markets. It will affect not only our current sales but also our future competitiveness,” she says.
She says the U.S. brand in global trade has diminished.
“I spent 15 years negotiating trade deals, when I talked to companies in other countries, many of them said, “even if you can’t get the tariff on U.S. goods to zero—just get it close,” she explains. “They knew that the U.S. has good logistics, and U.S. goods are delivered on spec, delivered on time, and backed by a stable legal system—a stable border and tariff policy, and good recourse in the courts. Now, with the sudden imposition of tariffs and strong rhetoric about foreign companies, those same trading partners are asking if those expectations are still indeed true.”
Vetter says there are three key trade actions to watch:
- Section 232: These were the tariffs put in place justified as countering a national security threat, and that led to a 25% tariff on steel and 10% on aluminum.
“No president has evoked this since the 1960s and certainly not since the WTO formed in the 90s,” Vetter says.
She says other countries decided to retaliate and focused on areas that would get the attention of U.S. lawmakers, such as pork, whiskey, and other agricultural goods.
“And the thing to watch is the second Section 232 investigation, looking at whether foreign automobiles and auto parts are should be considered a threat to national security, and therefore subject to tariffs. Those tariffs would cover$300 billion of imports, and with trade partners such as the EU, Canada, Mexico, Japan and Korea, that same level of US exports could be subject to future retaliation,” she says.
- Section 301: This is the rule the U.S. is using to try to address China’s intellectual property practices.
“This is about China’s behavior, their protection—or lack thereof—of intellectual property. There is a set of long-standing concerns we have had,” Vetter says. “These are not good practices, and several Administrations before this one have actively engaged with China to get them to curb them.”
She explains that related tariffs came in two waves: first with $50 billion on intermediate goods, which mainly effected the business-to-business space. And then this fall 10% tariffs went into effect on more than 5,700 products.
“You can eat 10% tariffs for a few months, but those tariffs went into place with an automatic trigger, and they are scheduled to increase to 25% on Jan. 1, 2019,” she says.
And in retaliation, China put its own tariffs on soybeans, corn, wheat, pork, beef.
“But China is running out of things to put tariffs on,” Vetter says. “They import less from us then we import from them.”
She says other countries have absorbed some of the US exports that could have been destined for China, but not at the same level as before, and with additional transaction costs and delays.
“What I am most concerned about is that with China, the U.S. has led with tariffs, rather than working with some of our partner countries who have had similar frustrations,” she says.
- Free Trade Agreements: This is the third front of the current trade landscape. This includes the renegotiated NAFTA (USMCA), which Vetter says Congress is likely to consider in 2019.
“With USMCA, the other two countries will look to us for timing and how serious we are about moving forward,” she says. “Congress doesn’t have the full text of the deal yet, and I could easily see this slipping into the second quarter if not later.”
Also of note with free trade agreements is the U.S. exit of TPP in January 2017. With trade negotiations set to launch with Japan in 2019, Vetter notes signals from Japan that the provisions in TPP will be the baseline for a future deal.
“It could be many months if not longer to reach an accord, and if the United States is going to offer terms that are TPP-Minus for autos, I see signals that it will likely be ‘TPP Minus for agriculture as well,’” she says.
Regarding the EU and the United Kingdom, any trade deal with the UK has to wait until it fully exits the EU, Vetter notes. And with the EU negotiations, the scope and objective are unclear.
“And it’s important to note, that while we’ve had our own trade issues, our previous trading partners have reached their own trade agreements with each other,” Vetter notes. She cites the Comprehensive and Progressive Agreement for Trans-Pacific (CPTPP), EU’s deals with Japan and Canada.
“As those agreements around us come together, our products will be less competitive,” she says. “We should be cleaning up because of our production and our efficiencies of scale. But what keeps me up at night is the level of investment in production across the globe.”
Vetter says that even if the tariffs go away tomorrow, the U.S. will be competing with new acres in production and new ag facilities around the world.