Terrible trade wars erupting

Prime Cuts with Steve Kay

Free trade is the lifeblood of the global economy. From the very first evidence of trading, regions of the world and then individual countries have bought and sold goods from each other. Countries increasingly realized the importance of such agreements, not just for the economic benefits for the countries involved but for the societal benefits they brought. These included an exchange of foodstuffs and other goods that raised the well-being of people. They were also a crucial way to create country-to-country relationships and avoid wars.

How ironic then that the U.S. administration chose to initiate a tariff dispute with China, one of the world’s oldest trading nations, a dispute that escalated July 6 into a full-blown trade war. Almost worse are the trade disputes with Canada, Mexico and the European Union. While Chinese tariffs on U.S. goods and products will hurt the U.S. the most, U.S. livestock producers are deeply saddened that a trade war has also begun between the U.S. and its two neighbours. Ever since the implementation of the North American Free Trade Agreement in 1994, producers have reaped benefits of having a highly integrated livestock and meat trade between the three countries.

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President Trump on July 1 said he is not happy with the revised NATFA deal his administration has been hammering out with Canada and Mexico. In an interview on Fox News, the president said he does not want to sign any new agreement until after the mid-term elections in November. His remarks came the same day as Canada started collecting tariffs on US$12.6 billion worth of U.S. products, including U.S. beef, in retaliation to U.S. tariffs on steel and aluminum imports from Canada and Mexico.

Canada’s tariffs include a 10 per cent tariff worth US$170 million annually on some U.S. beef products. They include products such as beef jerky, cooked meatloaf, meatballs, beef pies, stews, ground cooked beef, snack packs with meat, and mixed-meat TV-style dinners. Fresh and frozen unprocessed beef cuts and offal are not affected by the retaliatory import tariff. Certain processed products like beef sausages, corned beef or beef liver products are also not covered.

Mexico meanwhile increased its tariff rate on U.S. chilled and frozen pork muscle cuts from zero to 10 per cent on June 5, then increased it to 20 per cent on July 5. This effectively wipes out the NAFTA benefit, says the U.S. Meat Export Federation. The added negative price pressure for both hams and picnics could result in industry losses of US$425 million for July-December 2018 and US$835 million over the next 12 months, it says.

China on July 6 imposed a 25 per cent tariff on US$34 billion of U.S. goods in response to a similar duty imposed by the U.S. on Chinese exports that went into effect the same day. China’s additional 25 per cent duty will stifle U.S. beef exports to China and will severely limit exports the remainder of this year, meaning export losses of more than US$30 million, says USMEF. But the real impact is the lost opportunities for export growth the next two years. It estimates that exports to China could grow from the pre-tariff 2018 value of US$70 million to US$430 million by 2020.

How long the trade wars last is anyone’s guess. As of writing this, Trump wasn’t flinching. One point is clear, however. The pursuit of free and unfettered trade between nations has been dealt a severe blow that could have an impact on global trade agreements for years to come. Moreover, the wars will produce no winners. Everyone will lose, especially consumers in the countries involved.

About the author

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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