Washington Insider- Wednesday

More About Trade Prospects

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Trade Reforms Could Significantly Boost US-China Agricultural Trade: Report

U.S. farm exports to China totaled $20.4 billion in 2015 and are projected to rise to $26 billion by 2025. However, exports could reach $28.3 billion by 2025 if China removes several trade barriers, including its burdensome process for approving new biotechnology products, according to a report from the U.S. Chamber of Commerce in partnership with Informa Economics IEG.

Beyond biotechnology approvals, other barriers seen include China's tariff-rate quotas (TRQs) for corn, rice, wheat and sugar, along with high tariffs for other products; Chinese subsidies to domestic machinery makers; and anti-dumping and countervailing duties imposed by both the U.S. and China on one another.

The report analyzed the impact of trade reforms on key U.S. agricultural exports. Soybeans are the biggest U.S. agricultural export to China, accounting for over half of all such exports to the nation. With a reduction in trade barriers, soybean exports to China could reach $19.3 billion by 2025, compared with $18.4 billion without reforms.

Corn exports also stand to benefit, and could surge to $1.3 billion by 2025 with reforms compared to the current projection of $821 million under the status quo. Meanwhile U.S. exports of consumer-oriented food products such as dairy, pork and poultry could reach $3.2 billion by 2025 with trade reforms, compared to $2.4 billion without them, the report found.

China also stands to benefit from reductions in trade barriers by the U.S. China's exports of agricultural products to the United States could reach $5.8 billion in 2025 if the U.S. removes certain barriers, compared to $5.1 billion without any changes. Over half of the additional exports – around $360 million – would be processed fruits and vegetables.

However, if President-elect Donald Trump were to instigate a trade war with China, US agricultural producers stand to lose a great deal – particularly U.S. soybean exporters, Joseph Glauber, senior research fellow at the Washington, DC-based International Food Policy Research Institute (FPRI) said November 21 at a Chamber of Commerce event unveiling the new report.

"It would certainly cause a world of hurt if they were to close off the US, which is obviously supplying a lot of soybeans to China," Glauber noted.

Though the U.S. runs an overall trade deficit with China, agricultural exports are one of the few categories in which the U.S. runs a trade surplus with the nation.

Poultry Processors Face New Rules for Chicken Pricing Index

U.S. major poultry processors, beginning November 28, will be required to submit documents verifying the accuracy of information they want included in a key industry benchmark used to set chicken prices at U.S. supermarkets.

The first major change to the Georgia Dock index’s formulation in more than 40 years follows questions about the index’s accuracy. The benchmark, provided by the Georgia Department of Agriculture, has drawn scrutiny after a Wall Street Journal article earlier this year raised questions about how it was calculated. Prices have at times this year been 30% to 60% higher than comparable price quotes from other major indexes published by USDA.

The Georgia Dock index includes prices for chicken parts provided by representatives at nine different poultry producers with processing plants in the state. Pilgrim’s Pride and Tyson control about half of the 18 contributing plants to the benchmark, which excludes outlier prices that are more than one cent above or below the average.

There is no independent verification. Previously, each company representative told the state agency how many pounds its plants sold of certain chicken parts, and at what price, based on an honor system in place since 1973. Because poultry companies are not legally mandated to report the terms of their business agreements with retail, it is unclear how many contracts use the Georgia Dock index, as opposed to other indexes.

Tyson’s incoming chief executive, Tom Hayes, on a Monday conference call with company analysts played down the significance of the Georgia Dock index, which he said is a factor used to price 3.5% to 4% of its chicken volume. “It will have no impact, if the Georgia Dock went away,” said Dennis Leatherby, Tyson’s chief financial officer. Pilgrim’s, the second-largest US chicken processor, prices less than 5% of its current sales off the index, according to a spokesman.

Washington Insider: More About Trade Prospects

Well, if any one tells you they know what future U.S. trade policies will be, take a second look. In spite of the views of some well-placed observers, the Washington Post this week painted a picture of how really murky the outlook has become.

First, we have the Post’s description of President Obama’s efforts to reassure leaders gathered in Peru at an annual summit. He said that the United States would continue to pursue closer ties with the Asia-Pacific region, even though the coming Trump presidency “is sure to reshape America’s approach to the region.”

Still, the President-elect has been clear that he thinks that long-standing U.S. military base agreements in Japan and South Korea might be too expensive to maintain. So, it is not surprising that such talk has made governments in Asia “very anxious,” according to Michael Green, senior vice president for Asia at the Center for International and Strategic Studies and former senior Asia director at the National Security Council under President George W. Bush.

Even Chinese President Xi Jinping voiced anxiety directly Sunday evening as he sat across from the U.S. president at a long table, with both men flanked by several aides.

“We meet at a hinge moment in the China-U.S. relationship,” Xi said, through an interpreter, after Obama had thanked him for China’s cooperation on issues as divergent as climate change and nuclear nonproliferation. “I hope the two sides will work together to focus on cooperation, manage our differences, and make sure there is a smooth transition in the relationship, and that it will continue to grow.”

In addition, the Post said that when the President was asked publicly whether concerns about Trump’s presidency were “for real,” he responded that he had the same message he had been delivering to world leaders in Greece, Germany and Peru during his last foreign trip as president. “Don’t just assume the worst,” he said. “Wait until the administration is in place, it’s actually putting its policies together, and then you can make your judgments.”

However, he suggested that in the case of Latin America, “There are going to be tensions, most likely around trade more than anything else,” the Post reported. This includes uncertainty and anxiety over Trump’s administration in Tokyo, Seoul and beyond that “comes at a time of rising challenges and complexities.”

So, will President Trump modify threats made earlier to slap high tariffs on imports from China and withdraw the United States from a global climate agreement the Obama administration helped broker by courting cooperation with Chinese and Indian officials? We will see.

And, what does it mean that the president-elect has begun to reach out to Asian leaders and met with Japanese Prime Minister Shinzo Abe in New York. He also talked by phone with the South Korean president. After his meeting with Trump, Abe said that the two had a “very candid discussion” and that he is “convinced that Mr. Trump is a leader in whom I can have confidence.”

Certainly, the Trump’s team retains its sharply critical view of the Obama administration’s effort to “rebalance” or “pivot” U.S. foreign policy attention to Asia. Two policy advisers, Alexander Gray and Peter Navarro, criticized both Obama and former secretary of state Hillary Clinton as failing to exercise enough military muscle in Asia.

And, trade analysts are widely suggesting that a de-emphasis on trade deals and a more realpolitik approach to diplomatic relations may well prompt some Asia-Pacific nations to move closer toward China. For example, the Eurasia Group, a global risk assessment firm in New York, features Obama’s former senior Asia director, Evan Medeiros, predicting that “U.S. alliances will experience strain but will not break, while Asian leaders gradually hedge away from the US on both security and economic issues.”

In addition, even the Obama team expects that policy changes are on the way that may mean significant threats to long-standing trade relationships. U.S. Trade Representative (USTR) Michael Froman, who also attended the summit told reporters Friday that other nations’ political and economic calculus may change if the next administration delays ratification of TPP and sends different diplomatic signals concerning “China’s continuing to push for a competing trade agreement among the 10 members of the Association of Southeast Asian Nations and six other countries that have free trade agreements with that association.”

Froman noted that these other negotiators met a few weeks ago and have another round of talks scheduled next month. “That is happening, as we say, in real time, where we see people around the table here right now talking about that if TPP doesn’t move forward, then they’re going to have to put their eggs in an RCEP basket.”

So, the outlook for trade in the Pacific, especially, is certainly murky and likely negative and should be watched carefully as it emerges, Washington Insider believes.

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