Washington Insider -- Thursday

Economic Fallout From Threatened Border Closing

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

H2-A Reform Needed But Solution Elusive

Reform of the H2-A program that grants temporary visas for farm workers is in dire need of reform, growers and lawmakers agree. But that appears to be where the unified view ends as there has yet to be a solution to address shortcomings in the program that all sides can support.

The House Judiciary Subcommittee on Immigration and Citizenship held a hearing Wednesday, featuring testimony from several stakeholders in the issue.

Lawmakers agreed the program is difficult for producers to work with and has resulted in labor shortages. Growers testifying indicated the program can impact their operations, especially in situations where crop harvest has to take place within a limited amount of time.

The difficulties in obtaining workers through the program has also led to some producers turning to undocumented workers on their operations, according to the panel's Ranking Member Ken Buck, R.-Colo.

Panel Chair Zoe Lofgren, D-Calif., said getting the program fixed is also a matter of national security and raises the need for imports of certain products which can up the risk for contamination and increase costs for consumers.

Further, growers at the hearing noted that those workers coming in via the H2-A program are not taking jobs from U.S. citizens as these are jobs that Americans are not competing for.

But while the hearing revealed a unanimous view of change needed, it also underscored that there is no unified solution that lawmakers and stakeholders can both get behind.

WTO Sees 2019 Trade Growth Falling Short of 2018 Mark

The World Trade Organization (WTO) said global trade shrank by 0.3% in the fourth quarter of 2018 and the trade body now expects growth in 2019 will be 2.6%.

World trade expanded by 3% in 2018 despite the disappointing end to the year.

Roberto Azevêdo, WTO director-general, said the dim outlook is not surprising given rising trade tensions and tariffs.

Separately, International Monetary Fund Managing Director Christine Lagarde labeled the global economic outlook “precarious.”

Washington Insider: Economic Fallout From Threatened Border Closing

President Donald Trump's threat to close the southern border is stimulating widespread analysis as well as concern. Some of the estimates of potential impacts are very large. For example, Bloomberg cites reports that U.S. auto production would grind to a halt in a week if the border were shut.

Bloomberg also says that while pork producers and dairy farmers would be shut out of their largest export market, grocery shoppers also would quickly notice shortages of avocados, tomatoes and other produce along with steep price increases as supplies plummet.

Bloomberg notes that the administration has been short on details and that even inside the White House aides are unsure how — or even if — the threat will be implemented. But any move that would shut down or hinder the $1.7 billion in daily cross-border trade is seen as having far-reaching consequences across the U.S. economy.

Amid warnings from Republican allies and his advisers, Bloomberg says the president on Tuesday “dialed back” somewhat from last week’s “threat by tweet” to shut the border. Trump also said that the U.S. could “close large sections of the border, maybe not all of it,” but emphasized the idea that a border action isn’t off the table.

“Let me just give you a little secret: security is more important to me than trade,” the president said at the White House. “I’m totally prepared to do it. We’re going to see what happens over the next few days.”

Trade experts and analysts quickly moved to describe ways that a border closing would reverberate through the U.S. economy with its closely integrated supply chains. A closure would hit the auto industry hard and damage farmers already reeling from the impact of the trade war with China. Avocado prices, a product being used by the urban press as an example of an imported consumer item familiar to many, are already reported to have “spiked,” Bloomberg said.

“You can’t build an auto without all the parts,” said Kristin Dziczek, a vice president of the Center for Automotive Research in Ann Arbor, Michigan, told the press. “Within a shift or two we would start to see some parts shortages and some of those parts are so mission critical we would see the entire industry shut down within a week or so.”

A typical vehicle is assembled from 30,000 parts and Mexico is the largest source of foreign components for U.S. manufacturers, who have geared their production to lean inventories and just-in-time delivery. Seats, for example, often go back and forth across the border several times as they are produced in stages, said Charlie Chesbrough, a senior economist with Cox Automotive Inc., an Atlanta-based research and marketing company.

Late Tuesday, economic adviser Larry Kudlow said the administration was considering ways to limit damage. But, for American farmers and grocery shoppers, a border closing “would be disruptive really quickly,” said Veronica Nigh, an economist with the American Farm Bureau Federation.

Mexico supplies more than 60% of all fresh produce sold in the U.S. during the winter and early spring, said Lance Jungmeyer, president of the Fresh Produce Association of the Americas, a trade association that represents importers and distributors of Mexican produce.

American shoppers would see immediate price surges and then virtual disappearance from supermarkets of tomatoes, cucumbers, bell peppers, squash, eggplant, green beans, mangoes, melons, berries and chili peppers, Jungmeyer said.

Mexico also is the third-largest export market for all U.S. ag and the largest for corn, pork and dairy products, according to the U.S. trade representative.

Agriculture Secretary Sonny Perdue expressed concern recently that a border shutdown would hurt U.S. Farmers.

“If we lose the market, it would be catastrophic,” said Jim Monroe, a spokesman for the National Pork Producers Council. “It could not come at a worse time. We’ve already seen a significant drop in producer profitability because of tariff disputes.”

Tom Vilsack, a former U.S. agriculture secretary who is now president of the U.S. Dairy Export Council, said in a statement that closing the border “would be a gut punch that could set the industry back by a decade or two."

“There is not a ready alternative market for the millions of gallons of milk that are converted into the thousands of tons of dairy ingredients and cheese we ship to Mexico,” Vilsack said.

Still, Trump’s threat and the way he made it caused consternation among Republicans in Congress and drew derision from Democrats. “Closing down the border would have a potentially catastrophic economic impact on our country, and we would hope he would not be doing that,” Senate Majority Leader Mitch McConnell, R-Ky., said.

House Speaker Nancy Pelosi, D-Calif., speaking at an event in Washington Tuesday, dismissed Trump’s threat to shut down the border as “an applause line, not an idea.”

Fights over the border, immigration and related concerns seem to be baked into this year’s political confrontations, with growing economic implications across the economy and should be watched closely by producers as they intensify, Washington Insider believes.

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