AS the US imposes an additional round of tariffs on US$16 billion (RM65.6 billion) worth of Chinese imports, global trade relationships are changing in ways that could eventually leave American farmers out in the cold.
Farmers for Free Trade, a bipartisan campaign fighting US President Donald Trump’s tariffs, has surveyed farmers throughout the US about the trade war’s impacts. The common refrain has been that this group is worried about the long-term consequences.
While American farmers may be able to sustain their businesses in the near term, they are scared that markets where they have worked tirelessly to build relationships are now being won over by Brazil, Canada, Argentina, or Russia — among other competitors. No aid package will bring back those markets. And even if the trade war ended tomorrow, the damage has been done.
Farmers, of course, are not the only group that will be affected by any trade war. But their plight is important to understand because they were early targets of punitive tariffs, and those impacts are now being felt in associated industries.
Trump too often oversimplifies the complexities of policy issues to the detriment of those who elected him. Today, global trade is about more than tariffs. It includes a complex, interconnected network of suppliers, regulators, inspectors, shipping routes, and value chains. It is built on relationships, cost, and reliability. Most importantly, competition is fierce and growing. While tariffs can be turned on and off quickly, building — or reclaiming — trade relationships can take decades.
The turbulence and uncertainty caused by Trump’s trade war has created a geo-economic feeding frenzy. US competitors from Argentina to Ukraine are aggressively working to eat into markets once dominated by American farmers.
Brazilian soya farmers have seen opportunity and fortunes. Farmers in the countryside are swapping crops like sugar cane for soya, hoping to cash in and put Brazilian soya on Chinese dinner tables. And this bet is already paying big dividends. Brazilian soya bean exports to China rose to nearly 36 million tonnes in the first half of 2018, up 6% from a year ago, according to Reuters. In July alone, they surged 46% from the same month a year earlier.
In just two years, farmland used to grow soya exploded by five million acres (2.02 million hectares) in Brazil. Trump’s trade war is literally changing the global trade landscape — a trend will only be exacerbated when new tariffs go into effect tomorrow. And Brazilian farmers are not the only competitors reaping the rewards.
Tensions between the US and Mexico are pushing Mexican wheat buyers to find new sourcing. Argentine, Russian, and Ukrainian wheat growers, who are able to offer cheaper prices, are stepping in to fill the void and are selling wheat to Mexico flour millers to be used in everything from bread to tortillas. Russia surpassed the US as the world’s leading wheat exporter in 2016 and has only distanced itself from the competition since.
Meanwhile, US wheat exports globally have plummeted by 21% in just the first half of 2018.
The anxiety stemming from Trump’s multifront trade war is weighing down exports as well as future business opportunities. The uncertainty has forced delegations from China, India, Italy and Spain to cancel meetings with American farmers.
American farmers have persisted through climate change, market fluctuations, floods and droughts; the last thing they need is to contend with hardship and stress because of bad policy from their own government.
Less demand for US exports means soya, wheat, corn, and other crops sit in storage rather than being loaded on train cars, trucks, and eventually ships. The decrease in volume will transform supply chains that have been built and refined to maximise efficiency between the US and Asian buyers.
Bulk shipping managers are already repositioning fleets to take advantage of emerging trade routes and expanding opportunities. The trend serves as further evidence that the trade landscape is evolving while the US turns inward.
The decline in exports and squeeze on farm budgets will eventually make it difficult for farmers to cover bills, mortgages, loans, and planting costs for next year’s crop. That will extend the ripple effect to financial institutions, real estate, and future crop production.
Trump would be wise to abandon his failed strategy and quickly reclaim the mantel of global trade leadership before the US finds itself on the outside looking in. — Reuters
Trevor Kincaid was the Deputy Assistant US Trade Representative for Public Affairs in the Obama administration and is a member of the Washington International Trade Association. He previously served in the US Senate and House of Representatives.