USMCA Passed In Senate, China Trade Deal Signed

The so-called Phase 1 trade deal with China was signed to much fanfare January 15, while the Senate passed the United State-Mexico-Canada Agreement (USMCA) and sent it to President Trump for his signature.  Together, these two deals are moves in the right direction. But the China deal leaves most tariffs in place; Trump’s persuader was forgoing threatened additional tariffs. He promised that all extra tariffs will be lifted if and when a Phase 2 is agreed upon.  News organization are calling the deal only a “pause” or “cease-fire” in the two-year-long trade war.

The China deal is of great concern to soybean farmers. Until President Donald Trump’s tariffs took effect and provoked Chinese tariff retaliation against soybeans, China was a $21 billion market for U.S. soybeans, and growing. Now farmers fret that market may be lost forever, no matter what happens with the trade deal. The Phase 1 leaves most tariffs in place, although China has promised buy $200 billion of U.S. agricultural products over a two-year period, a promise that has provoked some skepticism.

Perhaps more important for U.S. ag interests generally is the USMCA, which was signed by Trump, Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau on November 30, 2018, as a side event of the 2018 G20 Summit in Buenos Aires. It was passed by the U.S. House of Representatives on December 19 of last year—one day after impeachment articles were voted against Trump—on an overwhelming positive vote of 385 to 41. The Senate passed it with strong bipartisan support January 16 and sent it to Trump to be signed into law.

Senate Majority Leader Mitch McConnell said Mexico and Canada buy more than $500 billion in American goods and services annually, including nearly 30 percent of all food and agricultural products the U.S. exports to the world. Taken together, Mexico and Canada make up a bigger trading partner than China for U.S. agricultural products.

Some of Trump’s critics called this bill nothing more than a face-saving replacement for the North American Free Trade Agreement (NAFTA), signed in 1994, which Trump campaigned against. But if that were true, Trump would not have gotten such significant Democratic cooperation on a bill that Big Labor, including the AFL-CIO, strongly supported.

It’s true that USMCA does reproduce many features of NAFTA. Steel and aluminum tariffs remain at 25 and 10 percent respectively, as under NAFTA.  But there are significant differences. Unlike NAFTA, USMCA has a “sunset clause.” It will last only 16 years unless renewed. USMCA opens up Canada to U.S. dairy farmers much more than NAFTA did. Under NAFTA, 62.5 percent of automobile components had to be made in either of the three countries to qualify for zero tariffs; under USMCA, that percentage is increased to 75 percent. One report estimates that the deal could add 28,000 auto industry jobs in the U.S.

Soybean farmers and the barge industry, understandably, focus on China. Mike Steenhoek, executive director of the Soy Transportation Coalition, which strongly supports waterways infrastructure improvements, said in a letter that the Phase 1 agreement provides farmers only “some” optimism. He pointedly added:

“In the midst of all the commentary regarding the Phase 1 agreement, I think it is very essential to underscore the importance of predictability and reliability as the U.S. and China trading relationship proceeds.  … Agriculture is one of the most capital-intensive industries in existence.  Every major component of the industry—land, seed, machinery, storage, transportation, and export capacity—is very expensive and involves multiple years to eventually realize a positive return on that investment.  Those investments will only be made based on both the volume of demand and the predictability of that demand. … When it comes to trade policy, I would rather it be predictably good than sporadically great.”

We hope USMCA will be quickly signed and implemented. It’s an open question how soon Phase 2 of the China deal will get negotiated during an election season, but let’s hope it’s sooner rather than later.

Steenhoek is right. American farmers and the waterways industry have generally supported the goal of getting China to reform its unfair trade practices and open up its economy further to market reforms and transparency. But what farmers and barge operators alike really want is a return to long-term trade normalcy and predictability.