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Trade remains complex, slow and hidden

Free Market Reflections with Steve Dittmer

Trade worldwide continues to be complex, slow and, for the most part, conducted behind closed doors. But trade negotiations in the old days were always glacial. It is only in the time of Trump that the pace has picked up drastically. Imagine three years ago getting the Chinese to the table at all, much less applying a 90-day deadline.

Even without leaks, increasingly higher levels of officials have been shuttling back and forth — a good sign. By the time you read this, the 90 days will be up and either an agreement will be signed or President Trump could be in the process of increasing 10 per cent tariffs to 25 per cent, a move the Chinese really want to avoid, given the state of their economy, banking system and currency.

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American and Chinese flag pair on desk over defocused background. Horizontal composition with copy space and selective focus.

If there is going to be an agreement at all, structural changes to handling intellectual property, to technology transfers and state-supported companies must be made and monitoring and enforcement systems agreed. The Chinese have indicated willingness to increase purchases of ag commodities but non-tariff trade barriers have been livestock’s problem. The ractopamine ban is unlikely to change, due to China’s own ractopamine history. Other residues (non-scientific barriers), traceability and China’s individual plant approval approach are issues to be improved.

Experts say China will wait until the last minute to put their best offer on the table.

It has fallen to Canada to have one of the biggest fish in the Huawei scandal when unseen hands decided to pull the trigger on that company. It remains to be seen if China really retaliates on the Canadian citizen they re-sentenced or if that was posturing that will eventually be walked back. The Chinese have not seemed to connect the incident publicly to the China-U.S. negotiations, as they do not want to call attention to the scandal. Polish officials also arrested a company official. Other countries have followed the Trump administration’s lead in expressing concern over Huawei’s potential security threats to global telecommunications.

Trade negotiation preparations have lagged significantly between the U.S. and Japan. The Japanese have not agreed to the depth and breadth of the negotiations President Trump wants to conduct. That is particularly troubling to American agriculture, given that the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) has now kicked in, giving that agreement’s beef producers a tariff break from the 38.5 per cent American cattlemen have had to contend with. Australia has already had a trade deal with Japan, giving it a double tariff advantage over the U.S. Now Canada gets an advantage.

Vietnam has recently joined the CPTPP, meaning that the “Greater China” market now has access to cheaper beef from the CPTPP.

The Japanese have been told the Trump administration will hold off an additional 25 per cent tariff on autos if good faith negotiations are under way in a timely manner. The Japanese have tap danced a bit but U.S. Ambassador to Japan William Haggerty made it plain.

“Our goal is to have a trade agreement that is no worse than any other terms that Japan has with other countries,” he said.

While Japan has been stubbornly resistant, personal meetings are always powerful movers and Trump could be in Japan in May for a state visit and during the Group of 20 Summit in June in Osaka.

As for the steel and aluminum tariffs we discussed last month, it appears more and more likely that they are being maintained to keep the pressure on Canada’s Parliament until they have ratified the USMCA.

Then there is the EU. Even under steady pressure from U.S. negotiators, EU officials have refused to put agriculture in general on the table. But they have signaled they would deal with a few side issues, one of them, perhaps, being the hormone ban quota.

There is one major unknown that could rattle the global trade picture. We know that African swine fever (AFS) is present in China. We don’t know just how far and wide it has spread there but word coming out of China is that both small and large operations in many parts of the country have been affected. Brett Stuart of Global Agritrends said the official number of pigs being culled was 900,000 around February 1. Calculating that likely only one in 10 incidents were being reported, that would mean 10 million pigs culled already.

AFS is the most feared pig disease. There is no vaccine and mortality is very high, near 100 per cent, Stuart said. It is carried by wild boars, warthogs and bush hogs. The virus will survive 1,000 days in frozen pork.

Half of the pigs in the world are in China, especially in the eastern regions. The spread of the virus there is inevitable. The question is whether it can be kept from spreading to other countries. ASF has already been found four times in tourist sausage.

Pork demand will turn lower but prices will go higher with the drop in supply.

Stuart’s best news was that global beef supply has grown over the last four years (2015-19), some six million head outside of Brazil — 50 per cent of that in the U.S. — and yet demand and prices have held up. Brazil’s herd has increased by 10 million cows but it has consumed them domestically.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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