November 7, 2019
Before we discuss trade and exports, keep one political detail in mind.
Congress has not passed the 12 appropriations bills that it was supposed to have passed by the end of the last fiscal year, Sept. 30. Its effort to stall—known in D.C. parlance as a “continuing resolution”—expires Nov. 21. That calls into the realm of possibility two specters worthy of fear/disgust to the average citizen/taxpayer: the game of chicken on a government shutdown and the omnibus monster; thousands of pages of spending in one giant bill no one will ever read in total. Keep your eyes open and your pocketbook hidden.
Many months ago, U.S. Trade Representative (USTR) Robert Lighthizer anticipated objections the Democrats in the House might have and built some features into the USMCA treaty to smooth the process. This summer and fall, he has met multiple times with a House Democrat working group to resolve issues they have with the treaty.
Not surprisingly, the AFL-CIO conglomeration of labor unions has not been shy in telling the Democrats why they oppose the treaty. Their complaint has been about ensuring enforcement of labor provisions in the treaty regarding higher wages and work rules.
A certain percentage of Mexican workers are supposed to make higher wages under treaty requirements. Mexico passed legislation months ago enabling them to comply but has balked at demands that inspectors be allowed into Mexican factories. They prefer the government certifying compliance, as is more typical in these agreements.
House Speaker Nancy Pelosi said weeks ago that passing the USMCA was important to American workers, more important than denying a political win to President Trump. That, however, was before she allowed an impeachment inquiry to go forward. And before the Trump/Pelosi tiff at a White House meeting that had her theatrically walking out of a meeting with Congressional leaders and the President.
The president and Vice President Mike Pence have been putting pressure on Democrats to bring the USMCA to the floor and pass it during political trips around the country.
It is interesting that no text of the implementing bill has yet been released by the Trump administration, something some Democrats have complained about. Lighthizer is likely planning to release just one version, one that is meant to satisfy as much as possible the objections from Democrats, so as not to invite delays over multiple versions.
It will continue to be important for cattlemen who favor the treaty to keep the pressure on their Congressional members, especially House Democrats, to pass a treaty so important to American agriculture.
Then there’s China
The “phase one” China agreement is still being negotiated, with even Chinese foreign departments sounding optimistic that an agreement will be finalized soon. The international meeting that was supposed to provide a sideline meeting venue between Chinese President Xi Jinping and President Trump to sign the deal vanished when host Chile cancelled the meeting. Chile is one of a long list of countries dealing with protests and riots and could not provide the security necessary.
Trump has not been bashful in offering a site in the U.S. if the deal gets done, including possibly Iowa, where the Chinese cancelled a scheduled farm trip weeks ago.
Expected features of the agreement are still expected to be some currency manipulation prevention, some intellectual property protection and a large commitment of ag commodity purchases. It was hoped that enough concessions from the Chinese would be included to head off tariffs on more Chinese goods scheduled for Dec. 15.
However, the Chinese have been lobbying and creating expectations along with some U.S. businesses for some reduction in tariffs already in effect on Chinese imports, especially direct consumer goods.
There is no doubt that events are putting pressure on the Chinese. The very fact that they are hoping for tariff relief is not just saving face. There are economic and essential reasons. Economic growth continues to drop each quarter.
A U.S. Meat Export Federation (USMEF) news conference this week revealed some interesting additional pressures. CEO Dan Halstrom noted that due to a shortage of pork, U.S. exports to China in July and August set records. Joel Haggard, USMEF’s Asia Pacific representative based in Hong Kong, noted that U.S. pork exports could grow a lot faster if they were not saddled with a 72% tariff vs. 12% for the competition. The U.S. has still carved out a 13% market share under the circumstances.
Observers and analysts are projecting that the Chinese have so far made up a little over 1 million metric tons (mt) of pork, from a projected deficit of 10 million mt. The deficit didn’t really begin to hit until August.
Since then, pork prices have spiked 80% in China. Daily pork slaughter has dropped from 4,000 head per day to 1,600. Haggard said the full demand for pork will really kick in during 2020. The EU is the primary competitor for American pork producers.
USMEF estimates are that the U.S. has the ability to supply 1.6 million mt of pork, compared to the 220,000 mt it sold to China in 2018. Politico reported that 2019 pork imports up to Oct. 24 had already totaled 241,000 mt. The publication also noted the National Pork Producers Council is estimating half of China’s hog herd is now gone.
What about beef?
Of course, that much volume of a competitive meat disappearing from U.S. meat cases would support higher beef prices.
Beef market share is growing in large double-digit figures in China but, laboring under a 47% tariff and a zero tolerance on ractopamine, is still under 1% market share.
The bottom line is that the pressure on the Chinese government from an African swine fever-caused shortage of pork is in the early stages but plain to see exploding.
Haggard also noted that some of the import pressure on U.S. beef into Hong Kong is being mitigated by citizen’s moves to cope. When they can’t go to restaurants that close in the rotating regions where protests are occurring, they cook at home instead. The declining tourist trade has hurt more, resulting in an estimated 10-30% drop in imports.
The recent Communist Party Plenum conference in China resulted in a vote of confidence for President Xi. So, he evidently does not have to worry about any fading political backing at home.
Taking a typical soft European approach, French President Macron said ahead of a Chinese import expo that he would take China “at its word” that it aims to open up to trade, according to Reuters. A presidential advisor said Washington was right to push for better behavior from the Chinese, even if France does not agree with the U.S. methods. Macron has been pushing for the EU to present a more united front to the Chinese.
There has been disquiet from some directions because trade advisory committee reports concerning the agreement with Japan have not been released. However, USMEF officials indicated it appeared the meat portions of the deal were solid, and it was other industries who hoped to yet be included that were nervous about not being mentioned.
As for Brexit, UK Prime Minister Boris Johnson managed to fool his doubters and obtain a revised deal from the EU. But he still couldn’t get the new deal through Parliament.
Through some maneuvering, he did get Parliament to call for new elections. On Deember 12, his Conservative Party will get the chance to convert their 10% lead in political polls from a minority position into a majority in Parliament to get Brexit passed.
Key WTO nations have been meeting to debate WTO reforms, agreeing that some kind of change need to be made. Those reforms have been necessary for many years, but nothing was done.
Trump’s administration has brought things to a head by refusing to allow replacement appointments for expiring terms to the WTO appellate body. The panel will cease to have enough members to function in early December.
Steve Dittmer is a longtime beef industry commentator and executive vice president of the Agribusiness Freedom Foundation.
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