Proposed agriculture import tax could hit consumers in wallet
Tyler Hersko , Tyler.Hersko@vcstar.com, 805-437-0312
Published 1:14 p.m. PT March 23, 2017 | Updated 3 hours ago
Ventura County’s $2 billion agriculture industry could be severely impacted by President Donald Trump’s proposed trade and taxation policies.
A crucial part of the region’s agriculture industry is focused on exporting crops to countries across the globe, while imported produce is a key aspect of the consumer market in Ventura County and throughout the nation. Government policies regarding imported and exported goods and taxation, in general, could significantly change under Trump’s administration, which has floated a number of controversial policy proposals. Since taking office, Trump has pulled the United States out of the Trans-Pacific Partnership, committed to renegotiating the North American Free Trade Agreement and has floated major policy ideas, including a 20 percent tax on imports from Mexico.Tax
Aside from the withdrawal from the Trans-Pacific Partnership, most policy changes are currently hypothetical. Still, his proposals, enacted or otherwise, could have a major impact on consumers and agricultural businesses throughout the county.
Of Trump’s proposed financial policies, the potential 20 percent tax on Mexican imports has drawn the most attention — and outrage. Trump initially floated the idea in late January as a way to make Mexico pay for a southern border wall. The idea has been harshly criticized by economists, business leaders and politicians from both major parties.
In theory, such a tax proposal would have a major impact on Ventura County’s agricultural businesses, several of which have both domestic and Mexico operations. But in reality, most local experts agree the financial burden of Trump’s proposed 20 percent tax would be shouldered by consumers. Besides the increased cost for consumers, a 20 percent tax on a country’s imports could cause a trade war with significant ramifications, said Matthew Fienup, executive director of California Lutheran University’s Center for Economic Research and Forecasting.
“Because the 20 percent tax is not a ‘tariff’ per say, the claim is being made that it won’t instigate a trade war, but it will increase the cost of imports so I don’t see why other countries wouldn’t retaliate as if it was a direct tariff on those goods,” Fienup said. “Academic research shows that both sides do worse in a trade war and the way to make a party better off is to reduce the barriers to trade. You might claim that any additional revenue makes the government better off, but the government is an agent of the citizens and its citizens on whom the tax will fall.”
Local agricultural business leaders such as Harold Edwards, president and CEO of Limoneira Co., a Santa Paula-based lemon and avocado grower, emphasized the value of free trade and noted the United States imports a large amount of produce to meet consumer demands. If import policies were modified to discourage international trade, major growing regions such as the state of California would be unable to keep up with market demand, Edwards said.
“In a normal year, the United States normally produces about 300 million pounds of avocados and Mexico produces 3 billion pounds,” Edwards said. Currently, annual avocado consumption in the United States is somewhere between 2.2 and 2.5 billion pounds, so there’s no way California could meet the total demand of the market. By making (Mexico’s) supply available to the U.S. market and consumers and allowing it to flow freely across the border, we were able to promote avocados and saw big increases at the retail level and in consumption.”
Mexico served as the United States’ third-largest supplier of imported goods in 2015, which totaled approximately $295 billion, according to information from the Office of the United States Trade Representative. Around $21 billion of that came from agriculture, including fresh vegetables, fresh fruits, wine and beer imports. Mexico was the second-largest supplier of agricultural imports in 2015, close behind Canada, which exported around $22 billion in agricultural goods to the United States that year.
Agriculture constituted a notable portion of Mexico’s goods exported to the United States but was dwarfed by the country’s mechanical shipments. Mexico shipped around $74 billion worth of vehicles to the United States in 2015, followed by electrical machinery and machinery at $63 billion and $49 billion, respectively. Given that the floated 20 percent tax was not specifically limited to agriculture or any other industry, it is possible that vehicle and machinery producers could also be taxed.
Mexico assets
The proposed 20 percent tax could also present complications for American businesses with assets in Mexico that import goods into the United States.
Not all local agriculture businesses are concerned about the proposed tax, however. Calavo Growers, a Santa Paula-based avocado packager and distributor with assets in Mexico, Central America and South America, would not need to adapt to a 20 percent import tax, CEO Lee Cole said. Though Calavo imports some of its produce back to the United States, and would, therefore, be subjected to the tax that could raise prices for consumers, fear of the proposed tax is overblown, Cole said.
“Probably a little bit of the cost might be passed on to the consumer (but) it’s definitely overblown and we don’t think (the tax) would affect us at all,” Cole said. “That 20 percent tax probably equals about 5 cents more per avocado and the price changes on avocados probably that much every month so it’s insignificant. Who is even going to notice it?”
Regardless, most local experts agree that actual implementation of the proposed tax, at least at a rate as high as 20 percent, is unlikely. Fienup judged the proposal as “extremely unlikely” to go through, while Ventura County Agricultural Commissioner Henry Gonzales referred to it as posturing. Still, given Trump’s quick executive actions on divisive issues such as abortion and immigration, agriculture leaders like Gonzales said that proposed policies could immediately destabilize local businesses if enacted.
Ventura County exports about 85 percent of the crops it produces, according to Gonzales. The county exported approximately 10,000 crop shipments in 2013, according to Ventura County’s 2013 Crop Report. Though Mexico is only the fifth leading export country, Ventura County would nonetheless be severely impacted by a trade war with its southern neighbor, Gonzales said.
“Mexican officials have already established that they’re going to give tit for tat and (would) raise their tariffs too,” Gonzales said. “In a tariff war of that sort, nobody wins. I’m not sure who the winners of his policies are going to be, but certainly, growers in California and in Ventura County, in particular, will be hurt by those types of changes that Mr. Trump is indicating.”
Popular tax plan
Though local opinions on the floated 20 percent border tax were mixed at best, some county businesses expressed optimism about Trump’s other proposed policies. Domestic tax reform is a key issue for Trump’s White House, which is focused on lowering tax rates for American corporations. While the White House website does not give any specifics, documents from Trump’s campaign website reaffirm his campaign goal of a maximum 15 percent tax on American businesses.
Trump’s business-friendly tax plan appeals to local agriculture business owners such as Edwards. In theory, a lower tax rate would be beneficial for businesses and consumers alike and ultimately bolster the workforce, Edwards said.
“It would be a hugely positive thing for our company if Trump’s proposals took corporate tax rates from 40 percent to 15 percent,” Edwards said. “That would be a huge boon to our business and would allow all of that cash and earnings that are now not paid out in the form of tax to be redeployed into growth which theoretically helps us hire more people and do better things for our shareholders.”
CNBC reported in late February that Trump told reporters a Republican tax reform plan was nearly completed but would not be implemented until health care reform has been put into place.
While Edwards expressed optimism about the Trump administration, he noted policies that resulted in more taxes or tariffs would be counterproductive.
“Limoneira has positioned itself as a global, free trader so anytime taxes or tariffs are implemented, it goes against what we’re trying to accomplish,” Edwards said. “I give the Trump administration the benefit of the doubt. They’re smart people and I assume they will run the numbers before they enact an agricultural policy change.”
As for agricultural policies that have already been enacted by Trump, the United States’ withdrawal from the Trans-Pacific Partnership is perhaps the most notable. Although it is not strictly an agricultural policy change, the Trans-Pacific Partnership had the potential to have a major impact on agriculture businesses that export their products internationally.
Ventura County exports
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Missed opportunity
The Trans-Pacific Partnership was supported by President Barack Obama’s administration and designed to allow the 12 countries involved to cheaply trade on a single unified market and benefit from overseas labor.
Opponents of the trade deal argued it would only benefit large corporations, raise prices for select goods and do little to create domestic jobs. President Trump lambasted the agreement during his presidential campaign, referring to it as a “disaster” and other more colorful descriptors. Trump withdrew the United States from the agreement shortly after his inauguration.
Local experts such as Fienup took issue with the secretive nature of the proposed deal and argued that though the Trans-Pacific Partnership could have had a positive effect on trade, the impact of the nation’s withdrawal was not immediately apparent.
“The overwhelming majority of professional economists agree that we should remove the existing barriers to trade,” Fienup said. “In principle, the Trans-Pacific Partnership should be a good idea, but the problem is that the way that it was negotiated, it wasn’t an open and transparent process, which is characteristic of a lot of the regulatory policies that were instituted over the last decade. It’s not clear what benefit we are foregoing.”
Since the Trans-Pacific Partnership never went into effect, withdrawing will not have a direct impact on the nation, said John Krist, CEO of the Farm Bureau of Ventura County. Still, Krist lamented the nation’s withdrawal and noted that it could’ve expanded trade opportunities in key markets such as Asia.
“There were important opportunities that the Trans-Pacific Partnership would have made available,” Krist said. “Asia is a growth market for a lot of our export products and anything that would have opened that to our agricultural producers in Ventura County would’ve been a potential benefit. Leaving the Trans-Pacific Partnership is a missed opportunity.”
Japan, one of the countries involved in the Trans-Pacific Partnership, serves as Ventura County’s chief export country by a significant margin. Ventura County exported 3,540 agricultural shipments to Japan in 2013, according to the county’s 2013 Crop Report. Canada served as the second leading export country, with 1,568 agricultural shipments from Ventura County.
Although county officials did not have individual breakdowns on types of shipments to other nations, the Office of the United States Trade Representative notes agriculture exports are a considerable portion of the United States’ trade to countries such as Japan and Canada.
American agricultural exports to Japan totaled $12 billion in 2013, a sizable fraction of the $65 billion total goods exported that year. United States exports of agricultural products to Canada totaled $24 billion in 2015, of $280 billion in total exported goods. Pork, corn and beef were the United States’ major agricultural exports to Japan, while prepared foods, fresh vegetables and fresh fruits were the nation’s primary agricultural exports to Canada.
NAFTA
Another major international trade deal that may be subject to change under President Trump is the North American Free Trade Agreement. The agreement eliminates tariffs between the United States, Canada and Mexico with the goal of fostering free trade.
Like the Trans-Pacific Partnership, Trump derided NAFTA throughout the election season as “defective” and “the worst trade deal maybe ever signed.” Trump has vowed to either renegotiate or exit NAFTA.
If NAFTA were renegotiated, Ventura County’s agricultural businesses could be put in a precarious position, Gonzales said. Due to high land and labor costs and a bevy of regulatory restrictions, Ventura County farm owners struggle to compete with Mexican businesses and rely on exporting to sustain their businesses. Therefore, as NAFTA removes trade barriers such as tariffs, its dissolution could be a major detriment to local farmers, Gonzales said.
“I’m concerned that if a new NAFTA is sought it may not be to the benefit of growers in Ventura County,” Gonzales said. “Mexico has an interest in exporting their strawberries and vegetables (too) and however an agreement is reached, it could have some negative impacts on our growers in Ventura County which are already at an extreme disadvantage to the growers in Mexico. There’s no way Ventura County growers could compete with countries like Mexico.”
A recurring sentiment among Ventura County’s business experts is companies are operating in a state of uncertainty due to the shifting and unpredictable nature of the Trump administration. Despite initial assumptions that Trump may enact pro-business policies, the first months of his presidency have not been encouraging, according to Fienup.
“One of the hopes of having a businessman as opposed to a career politician assume the office of the president is that you’d have more business-friendly and predictable policies,” Fienup said. “But I don’t see evidence that that’s the direction we’re headed in. The early evidence is that uncertainty, if anything, has increased.”
