How Trump could trigger a bust in the American West
By Ana Swanson February 10 at 11:14 AM
Nearly two years ago, Brian Levin found himself in Japan, covered head-to-toe in beef and posing for a photograph with John F. Kennedy’s daughter.
It was all part of a plan to get his product, a high-end beef jerky, into the Japanese market. Wearing a Velcro suit that allowed people to rip packages of beef jerky off it, Levin, the chief executive of a brand called Perky Jerky, appeared beside Caroline Kennedy, the U.S. ambassador to Japan, at a trade show promoting U.S. food.
It was a big opportunity for the brand, and others like it. In 2013, Japan finally eased restrictions on American beef imports established a decade earlier, when fears of mad cow disease chilled demand for U.S. meat. In its first year, Levin projected, his company would earn about $3 million in Japan.
But shortly thereafter, the company’s fortunes there were suddenly brought to a halt by forces beyond its control: the shifting foundation of global trade agreements.
In the past few months, the future of global trade has changed dramatically. President Trump has announced his intention to renegotiate the North American Free Trade Agreement with Canada and Mexico, which facilitates more than $1 trillion in trade each year. He also officially withdrew the United States from the Trans-Pacific Partnership, a 12-nation trade pact the Obama administration had negotiated.
Many American industries have celebrated the decision to withdraw from the TPP, arguing that the deal would subject businesses to unfair foreign competition. But America’s farmers and ranchers — perhaps the world’s most advanced agricultural sector, and one that exports roughly one-fifth of everything it produces — generally do not agree.
“We want a trade treaty,” said Zippy Duvall, president of the American Farm Bureau Federation. “We’re concerned [about Trump’s trade rhetoric], but he’s our president and we’re going to try to support him. We did certainly let him know that we’re nervous.”
The United States has exported more farm products than it has imported since 1960 and is a major supplier to China, Japan, Mexico, Canada and elsewhere. Today, the industry faces headwinds. The price of grain has plummeted because of a global glut, and a strong dollar is pushing up the price of U.S. products relative to foreign competitors. With the United States seemingly poised to withdraw from global trade, farmers and ranchers are wary that they could soon see more disruption to their businesses.
The “poster child” for potential losses because of changing trade dynamics, according to analysts, is the U.S. beef industry. The TPP put that industry on the cusp of a lucrative agreement with Japan, where consumers pay a premium for cuts Americans don’t prefer, including beef tongue, intestines and short ribs, as well as other products.
Kent Bacus, the director of international trade and market access at the National Cattlemen’s Beef Association, which represents roughly 180,000 U.S. cattle producers through its affiliate structure, said the TPP would have been “a big shot in the arm for the U.S. beef industry.”
“It would have given us the greatest market access ever negotiated in Japan,” he said, gradually reducing the 38.5 percent tariff Japan levies on U.S. beef to just 9 percent.
Now farmers and ranchers worry that countries around the globe are forging their own trade pacts that will give competitors an advantage and leave U.S. producers behind. For the beef industry, Australia is a particular concern. On Tuesday, Australian Trade Minister Steven Ciobo said the remaining countries in the Pacific trade pact would push ahead with a deal without the United States.
Australia has also entered into trade agreements with China and Japan, both of which went into force in 2015. As a result, Japan has lowered the tariff it charges on Australian beef imports to 27.5 percent. In the future it will be phased down to 20 percent — about half the mark-up given to American products.
“I think that agriculture sector in the U.S. is very worried about the administration, for very good reasons,” said Joshua Meltzer, senior fellow at the Brookings Institution. “If you take beef, Australia’s … beef exports have better access into Japan now than the U.S. beef industry does. That was going to be addressed in the TPP, but that’s no longer the case.”
The other countries in the TPP “will be entering into other deals among themselves, or potentially a collective TPP deal without the U.S. All these deals would disadvantage U.S. commercial interests,” said Wendy Cutler, a vice president of the Asia Society who worked for decades as a negotiator in the Office of the U.S. Trade Representative.
Though they will likely take years to finalize, China is pushing forward on two expansive trade deals, one involving the countries of East and South Asia, as well as Australia and New Zealand, and another involving countries around the Pacific Rim. Mexico recently met with New Zealand, Malaysia and China about bilateral deals, and Japan and the European Union are close to finalizing their own pact, Cutler said.
Now that the prospect of the TPP has vanished, American farmers and ranchers are focusing on the prospect for new bilateral deals. The Trump administration has professed a preference for negotiating with countries one-on-one, saying it gives the United States more leverage at the bargaining table.
“We would encourage President Trump that if the TPP is not the answer that he’s looking for, that a bilateral agreement with Japan would be our next choice,” said Bacus, of the National Cattlemen’s Beef Association.
The industry’s major competitors, including the European Union and Canada, are pursuing bilateral trade agreements with Japan, he said: “If we become less competitive, we do not have another market that can absorb the volume and the value that Japan purchases. And that has a direct impact on cattle prices and, most importantly, our farmers and ranchers in rural America.”
The problem, Bacus and others say, is that a bilateral agreement with Japan could take years to negotiate — while other competitors chip away at America’s share of the global market.
“Trade is more important than all the U.S. farm programs put together to the U.S. agricultural sector. So anything that can be done to expand opportunities to do business in other markets will be really important,” said Bryan Riley, senior analyst for the Heritage Foundation and free-trade advocate.
“The hope is now, to borrow a phrase, that we could have even bigger, better agreements, and I think that’s the challenge for the new administration,” Riley said. “If we sit on the sidelines while other countries negotiate agreements, it will be to the detriment of our farmers and ranchers and all the competitive industries in the U.S.”
Farmers and ranchers are also closely watching Trump’s promises to renegotiate NAFTA, a pact that gives them unfettered, duty-free access to Canadian and Mexican markets.
In a debate in October at the Tax Policy Center, a Washington-based think tank, commerce secretary nominee Wilbur Ross used Mexico’s dependence on American food exports to argue that the country was unlikely to retaliate against a more aggressive trade stance and trigger a trade war. Among other reasons, Mexico needs American farmers to keep its people fed, he said.
“[T]hey couldn’t function as an economy in a trade war,” Ross said. “Their farmers are notoriously inefficient. Farming has actually shrunk as a result of NAFTA. … Without the cheap U.S. agricultural exports to Mexico, they would have to either raise the prices a lot on the food commodities their people consume, or not feed them.”
But American ranchers may view the relationship more cautiously. According to Bacus, any disruption of the North American supply chain could have a devastating impact on the U.S. beef industry.
“If we walk away from NAFTA, if we withdraw completely, or even if we jeopardize the access we have now, we could face pre-NAFTA tariff levels upwards of 25 percent,” he said. “And it would be hard to replace the loss in market share.”
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For now, the death of the TPP and the uncertainty of further agreements has been a step back for businesses that were positioning themselves to take advantage of new terms of trade — like Levin’s Perky Jerky.
Levin, who previously helped to build the voting system for “American Idol” and said he found inspiration for his jerky brand when he “spilled a Red Bull into a bag of jerky while skiing,” described withdrawing from the TPP as “a kick in the face for all the work that we put in.”
“It’s going to put China in the driver’s seat, and we’ll be left out,” Levin said. “Globalization is happening. You can put the brakes on it, but slowing it down from our side with protectionist policies is just going to pave the way for others to pass us by.”
“Mr. President, he likes to use case studies and examples. I wish he would see one from the other perspective, of somebody who is being hurt by the very policy that is trying to protect us. That said, I probably don’t want to piss him off,” Levin said, with a laugh.
— Caitlin Dewey contributed to this report
