Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.WTO Panel to Rule Dec. 7 on US COOL Rule Retaliation Levels
A World Trade Organization (WTO) arbitration panel plans to rule on Dec. 7 whether Canada and Mexico overestimated any harm that U.S. meat-labeling rules caused to their respective livestock industries. Canada and Mexico are seeking a combined $3.2 billion in annual retaliatory trade measures after the WTO found in May that U.S. country of origin labeling (COOL) rules treat imported meat less favorably than domestic products.
Chairmen of the House and Senate agriculture committees, Rep. Mike Conaway, R-Texas, and Sen. Pat Roberts, R-Kan., support a full repeal and are backed by meat industry groups. In June, the House passed legislation (HR 2393) repealing COOL for beef, pork and poultry.
The Senate has yet to move anything forward as Sen. Debbie Stabenow, D-Mich., the top Democrat on the agriculture panel, and Sen. John Hoeven, R-N.D., push for a voluntary program. Lawmakers may attempt to attach a provision on COOL to a Fiscal Year 2016 government spending bill. Details of the omnibus appropriations measure is expected to be made public the week of Dec. 7.
Canada International Trade Minister Chrystia Freeland said, “We’re just waiting for the number,” referring to the dollar amount of retaliatory tariffs the WTO may allow and noting the WTO has already “ruled in Canada’s favor” on COOL. The U.S. challenged Canada’s economic analysis – a move that triggered an arbitration hearing in September.
The pending WTO decision stems from that hearing. Canada Agriculture Minister Lawrence MacAulay has been pushing for a full repeal of COOL since taking over the portfolio in November – raising the issue with his American counterpart USDA Sec. Tom Vilsack. MacAulay has said Canada will retaliate if necessary.
“It’s not what we want to do, but if we were forced to do it, it’s something that we would likely have to do,” MacAulay said Nov. 10.
Canada’s agriculture industry has insisted a full repeal is the only acceptable option – a position backed by former Agriculture Minister Gerry Ritz and International Trade Minister Ed Fast.
The Canadian red meat industry estimates COOL is costing the sector $1 billion annually, while several packing plants in the United States have been forced to close because of supply shortages partly blamed on COOL.
***U.S. Agriculture Starts FY 2016 with $3.4 Billion Trade Surplus
The value of U.S. agricultural exports was at $12.58 billion in October against imports valued at $9.15 billion to result in a trade surplus of $3.43 billion to open Fiscal 2016, according to USDA data.
The value of U.S. ag exports in October is $1.83 billion lower, or nearly 13, from year ago while the value of imports was down $495 million from year ago. The resulting trade surplus of is down $1.336 billion, or 28%, from the Oct. 2014 trade surplus.
The October export value is the largest since Dec. 2014 when exports were valued at $13.93 billion while the value of imports was the largest since $9.21 billion in July. The trade surplus is also the largest pool of trade black in since December 2014 when it was $4.42 billion. The October surplus broke a string of six consecutive months where the trade gap was below $1 billion.
USDA is forecasting the value of U.S. ag exports to be $131.5 billion for Fiscal Year 2016, having lowered expectations $7 billion from USDA's August forecast. If realized, exports would be $8 billion less than Fiscal 2015.
The value of U.S. ag imports in Fiscal 2016 is now at $122 billion, down $500 million from the August outlook, but still a new record and some $8 billion above the Fiscal 2015 level.
The updated forecasts now mean an ag trade surplus of $9.5 billion, down $16.2 billion from the Fiscal 2015 mark of $25.7 billion. The new forecast ag trade surplus would be the lowest since Fiscal Year 2006.***
Washington Insider: Changing Global Markets
The Wall Street Journal recently ran an article with a guaranteed very high eye-glaze factor, but also an important message. It explained the demographics that have a large role in the explanation of recent global economic growth problems.
The article pointed out that the developed world’s workforce will start to decline next year, a trend that will increase pressure on future spending and growth patterns. Ever since the global financial crisis, the Journal reported, economists have groped for reasons to explain why growth in the US and abroad has repeatedly disappointed and have offered reasons including “everything from fiscal austerity to the euro meltdown.”
Currently, the WSJ says, analysts are coming “to realize that one of “the stiffest headwinds is also one of the hardest to overcome: demographics.”
The article also notes that next year, for the first time since 1950, combined global working-age population will decline and by 2050 it will shrink 5%. The ranks of workers also will fall in key emerging markets, such as China and Russia. At the same time the share of these countries’ population over 65 will skyrocket.”
This reflects two long-established and well-known trends: lengthening lifespans and declining fertility. Companies are running out of workers, customers or both. In either case, economic growth suffers.
And, as a population ages, buying patterns also shift, more toward services such as health care and away from durable goods such as cars.
This leads the Journal to assert that the reason a historically weak recovery in the US has nonetheless pushed the unemployment rate down by half is that the economy “doesn’t need as many new jobs to employ the smaller net flow of entrants into the workforce.” It also explains how home builders can simultaneously suffer from shrinking demand since the homeownership rate is declining, and from labor shortages as the baby boomers retire.”
Japan is an extreme case of slowing population growth, but the rest of the advanced world and many emerging economies are following similar paths. By 2050, the world’s population will have grown 32%, but the working-age population (15 to 64 years old) will expand just 26%.
Among rich countries, the U.S. remains demographically fortunate: Its working-age population should grow 10% by 2050. But it will still shrink as a share of the total from 66% to 60%. The U.S. is comparatively lucky because while it, too, is aging it can count on a higher fertility rate and immigration to refresh its workforce.
How much a country saves is heavily influenced by the difference between the share of its population 40-65 and the share over 65. For the U.S., Eurozone, Japan and six other major economies, that difference rose steadily from the early 1980s to the present which explains why China runs such a large trade surplus
Since Chinese households consume less than they earn so they can afford to retire, and because capital markets are global, excess savings in one country spill over to another via interest rates. The Journal argues the rising number of mature workers relative to elderly retirees is a key reason that inflation-adjusted interest rates have steadily declined recently and are now negative in most advanced countries. Those demographic influences are about to reverse.
This coincides with another demographic factor: Consumption habits change as people age. Younger households spend more on homes, cars and their children’s education. For the typical American between 35 and 44, 8% of total consumption goes toward mortgage interest, compared with just 3.6% for someone over 65. By contrast, the typical over-65-year-old devotes 13% of total spending to health care, compared with 6% for a 35- to 44-year-old.
Population trends over the next 35 years are challenging but aren’t set in stone. However the world’s growth rate has been in decline since the 1970s and is projected by the UN to fall even further. And, some countries that are short of workers are turning to automation to adjust. China became the world’s factory floor thanks to a seemingly limitless supply of rural workers.
However, that excess supply is now shrinking and Chinese wages are climbing sharply, so they are turning to robots also.
Another route is immigration, but the greatest supply of immigrants to the U.S., such as Mexico and China, are themselves aging and the cohort that traditionally sought a better life abroad is shrinking. Mexico’s fertility rate has dropped from 5.4 in the late 1970s to 2.3 now and by 2030 will be 1.9, the same as the US, and below replacement rate.
Certainly, these are important trends, but often volatile and hard to interpret, as well as controversial. The Wall Street Journal has done a service it making them available for discussion, even in these extremely polarized times, Washington Insider believes.
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