Japanese Prime Minister Shinzo Abe laughs with U.S. President Donald Trump during a signing ceremony for a new trade deal at the United Nations General Assembly in New York on Wednesday. Photo: REUTERS/Jonathan Ernst
politics

Japan deal nice for U.S. agriculture but China is the much bigger prize

14 Comments
By Karen Braun

U.S. President Donald Trump has been eager to deliver a win to American farmers and ranchers ever since entering a trade war with Beijing more than a year ago. While Wednesday’s agreement with Japan has potential to lift U.S. exports, opening agricultural trade back up with China would undoubtedly be the bigger and much-needed victory.

The United States and Japan signed a limited trade deal on Wednesday that cuts tariffs on U.S. farm goods, Japanese machine tools and other products. Trump said this would open Japanese markets to about $7 billion in U.S. agricultural products, including beef, pork, wheat and cheese.

Japan has long been a cornerstone of U.S. agriculture trade. The United States is Japan’s largest food and agricultural product supplier with an import share of 25%, according to the U.S. Department of Agriculture. Japan is the top destination for U.S. wheat and beef, No. 2 for corn and pork, and in the top five for soybeans and dairy products.

The United States and Japan intend to conclude the trade negotiations within about four months, and they both plan to refrain from actions “against the spirit” of the initial agreement in the meantime.

JAPAN POTENTIAL LIMITED?

The United States may be Japan’s top agricultural supplier, but that does not diminish the importance of other exporters, who have had a recent advantage over U.S. products given the lack of a U.S.-Japan trade deal.

Imports from Canada, Mexico, Australia and the European Union, to name a few, receive preferential tariff treatment over U.S. products due to the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in December 2018 and the Japan-EU Economic Partnership Agreement in February 2019. The CPTPP does not include the United States.

Australia is Japan’s top beef supplier, accounting for 40% of imports in the first half of 2019. The United States was second with 34%. In the same time frame, EU supplied 33% of Japan’s pork while U.S. pork accounted for 32% of imports. U.S. corn has recently accounted for about 80% of Japan’s annual corn imports, on average.

Putting the United States on an equal playing field with Japan’s other suppliers in terms of trade tariffs will certainly be a positive for the U.S. market. But even without a trade deal, U.S. exports to Japan were strong last year.

Exports of U.S. bulk commodities (such as corn and wheat) to Japan reached 21.2 million tonnes last year, an eight-year high. Overall agricultural exports to Japan were valued at $12.9 billion in 2018, the highest since 2014.

Through the first seven months of 2019, total exports are down slightly, but this might be explained by normal market forces such as price and increased supply in other countries versus last year.

The $7 billion in new market access for U.S. agriculture products is likely referring to the current volume of goods flowing into Japan that will now be subject to reduced tariffs. Increasing business by $7 billion seems unrealistic given that the total value of U.S. exports of agricultural products in 2018 came in just under $13 billion.

The quoted value of $7 billion is also a bit loose because that completely depends on the market value of the commodity. For example, the United States exported 50% more corn to Japan in 2018 than in 2012, but the value was slightly higher in 2012 at $3 billion versus $2.8 billion last year.

MORE POSSIBILITIES FROM CHINA

Japan outranked China in terms of U.S. agricultural exports by value last year, placing third behind Canada and Mexico, but China used to outrank everyone just a couple of years ago.

Unlike with Japan, ongoing trade tensions between Washington and Beijing have caused China’s imports of U.S. agricultural products to plummet, and the impact has certainly been felt. American agricultural exports to China amounted to just $9.15 billion last year, the lowest since 2007. Last year’s value was down 53% from 2017.

U.S. soybean farmers have taken the worst hit as China is the largest buyer. Exports to China in 2018-19 fell by about 53% from a year earlier and 63% from 2016-17. U.S. soybean business to China in calendar year 2017 totaled $12.2 billion, accounting for more than half of all agricultural exports that year. But that number plunged to $3.1 billion in 2018 after China applied a 25% tariff to the U.S. oilseed.

Trade aid payments from the U.S. government have helped producers in the meantime, but most in the industry believe it will not be a long-term sustainable plan and that trade must be restored so U.S. farmers can appropriately respond to market conditions when making production decisions.

China has been the United States’ primary buyer of sorghum by a long shot, but the feed grain has been nearly shut out in the wake of the trade dispute. Through the first seven months of 2019, sorghum shipments to China are down 84% from the same period a year earlier. Exports to all countries are down 29% over the period.

China also used to buy distillers dried grains (DDGS) from the United States, but an anti-dumping, anti-subsidy investigation back in 2016 prompted China to slap steep tariffs on the feed ingredient, practically grinding that trade to a halt. DDGS are the byproduct of ethanol production for corn, and China has accounted for as much as half of annual U.S. exports in the past.

Ethanol could be another promising U.S. export to China, which wants to increase the blend rate of ethanol into gasoline. Infrastructure and policy are lacking, though, so imports would be a good, cheaper way to get the program off the ground.

© Thomson Reuters 2019.

©2019 GPlusMedia Inc.

14 Comments
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U.S. soybean farmers have taken the worst hit as China is the largest buyer.

Yeah, the soybean farmers had best find alternative markets as China is not likely to be a good trade partner anytime soon.

2 ( +2 / -0 )

The only time I ever see that loathsome sycophant Abe with that big idiot grin plastered all over his stupid turtle face is when he's in the presence of The Donald. A special mention in The Order of the Brown Nose is called for I think.

2 ( +4 / -2 )

US beef, pork, chicken, cheese, GMO wheat? No thank you!

The only food product I want from the US is beer.

It's about the only thing they do really well.

But it wasn't on the list!

I guess Abe doesn't mind about killing off Japanese agriculture, because that's not what his friends and relations are into. But beer? No. That would rock the boat unnecessarily, wouldn't it?

-3 ( +1 / -4 )

Japan is destroying their own farmers and damaging their own economy on behalf of trump and trump's ideal.

Why ???.

-1 ( +2 / -3 )

The only food product I want from the US is beer. 

It's about the only thing they do really well.

I hope you’re talking about craft beer because their mainstream stuff leaves me wanting something decent.

3 ( +3 / -0 )

More of Abe following Washington's orders. Why do the Japanese people let him get away with it?

-1 ( +1 / -2 )

Haaa Nemui-san, Oh yes! Of course! I should have been more specific. There are some truly wonderful American craft beers. Reduce the tariffs on US craft beer, please!

0 ( +0 / -0 )

More of Abe following Washington's orders. Why do the Japanese people let him get away with it?

Because the Japanese need us as much as we need them for trade, technology, food, security, but don’t worry, it’ll be like this long after we’re gone.

There are some truly wonderful American craft beers. Reduce the tariffs on US craft beer, please!

Lol, oh, I’m definitely with you on that one.

1 ( +3 / -2 )

Hi BertieWooster, DYK that there is no GMO wheat grown anywhere in the United States?

DYK that there is no GMO wheat grown anywhere in the entire world? However, Brazil has announced they will allow imports of HB4 GMO wheat from Argentina so farmers there will grow it and be the first in the world to be able to access the exciting GMO wheat technology.

0 ( +0 / -0 )

Trading with China was the biggest mistake by the entire world. For China it was a great win having taken all the world's wealth only to build a war machine in their quest for more. Have to give it to the Chinese, the found a way to make profits from their junk and it stays in other countries except their own. The US farmers have other great partners to sell their products but the US laws make it impossible for them to do so.

1 ( +1 / -0 )

Trading with China was the biggest mistake by the entire world.

No, trading with China was normal. This his how the flow works. A country that can provide cheap labor and infrastructure is attractive to countries looking to manufacture. So they manufacture in that country, which brings up its economy to the point that it then loses the advantage of being cost affordable, and need to shift to other means of supporting its economy. This is what happened to Japan.

The problem came when the Chinese started requiring intellectual property in order to do business in China. That's where the mistake was made, because now China also owns all the technology. This was the colossal mistake.

0 ( +0 / -0 )

Trading with communist China comes with liabilities, the bigger the trade, the higher the liabilities. China is just very good at delaying the liabilities to a later time, a time when it suits them politically.

Every time you sell something to communist China, you're carrying their political ambition, and if you are not with them politically, you will be punish. Same with human rights, same with territories grab, same with safety standards....

1 ( +2 / -1 )

More of Abe following Washington's orders. Why do the Japanese people let him get away with it?

LOL, that chip on your shoulder is affecting your critical thinking and it shows in every post you make. This trade deal is so much in favour of Japan, here's your chance to denigrate Trump's deal making ability, yet, you've segued back to your favourite grievance, American institutions instead, where it doesn't even make sense from any angle.

0 ( +1 / -1 )

Sure Japan must bend when Trump squeezes, japan is just a bigger banana republic! Nothing special, Abe get use to betrayal his supporters!

2 ( +2 / -0 )

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