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Senate passes USMCA

Phase One agreement also made

January 24, 2020
By Kristin Danley-Greinter - Farm News staff writer (Farm—News—Iowa—KSDG@msn.com) , Farm News

By KRISTIN DANLEY-GREINER

editor@farm-news.com

By KRISTIN DANLEY-GREINER

editor@farm-news.com

While many are celebrating the signing of the USMCA agreement and the subsequent Phase One agreement hashed out with China, others are warily watching these trade agreements' effect now and in the future.

Chad Hart, Iowa State University agriculture economist, said that the markets dropped when the Phase One signing was announced. He explained that it was a case of "buy the rumors, sell the fact."

"There was an initial downward reaction. The market had already built up with the expectation of what this deal could mean. It definitely represents a gain, since China is going to buy more, but I think the market's expectation was higher than what we got in the agreement," Hart said. "Friday, we saw some bounce-back again."

While the USMCA agreement is positive news for the markets and ag industry overall, how it continues to react will depend upon expectations and reality. Hart said that the Phase One deal is "a pretty good one" in that there will be more sales to China; however, there may be a boomerang effect when considering the Phase One deal, too.

"We've built up sales to China for two years from now, but when the deal comes off, how will China react? Also, do we crowd out other markets as we go to fill the demand for China? That's my biggest concern," Hart said.

Now that farmers have an obligation to fulfill the Phase One agreement with China while abiding by the USMCA once Canada signs it, what happens to the markets groups have worked hard to open up and fill those previous voids?

"We're going to push lots of sales to China and so we're going to lose some other markets to fill that sale. Is that better or worse for us? It makes us even more China-centric so if we're selling them $40 billion worth of stuff, they will become our biggest market and become even more dependent on that market," Hart said. "Does this mean we aren't going to try and sell to other countries?"

The effect of the USMCA reaches beyond the market and producers' bottom line, officials say. As the Senate rushed to push the USMCA through to the president's desk before the House filed impeachment papers, U.S. Senator Chuck Grassley of Iowa said that the trade agreement with Canada and Mexico will help add hundreds of thousands of jobs, funnel billions of dollars into the economy and open up market access for international trade. Iowa Secretary of Agriculture Mike Naig noted how new agreements have been secured with Japan, China, Canada and Mexico, four of the largest trading partners, is a good thing for American farmers.

"(this) gives producers greater market access for their products and a renewed sense of optimism heading into the 2020 season," Naig said.

Iowa's producers and commodity organizations note that having the USMCA in place finally is good for farmers and the ag economy. Dal Grooms, spokesperson for the Iowa Pork Producers Association, said it's critical that all three countries sign off on the deal in order for U.S. pork producers to have "the level playing field they have historically had with both countries that buy 40 percent of our export products." Mexico has signed off, but Canada's parliament will not address the USMCA until it returns to session later this month.

"I'm excited the U.S. Senate has provided bi-partisan adoption of USMCA because it will protect Iowa pork producers from being caught in the middle of future tariff issues between the countries. Our industry has worked many years in developing valuable international trading relationships that have fueled Iowa's rural economy and helped offset the U.S. trade deficit. It is important to me and Iowa's other pig farmers that we return to those good working relationships we have had with Mexico and Canada," said Trent Thiele, an Elma producer and IPPA president.

When combined, the joint Mexico and Canada market has consistently purchased 40 percent of all U.S. pork exports when there was a trade agreement between the three countries. Returning to that status is important for Iowans, Grooms explained, because 25 percent of the pork produced in Iowa goes into the export market.

Katie Olthoff, spokesperson for the Iowa Cattlemen's Association, said rolling out the USMCA has been a top priority for the organization.

"It is truly a vital trade agreement for Iowa's cattle producers. Exports to Canada and Mexico add approximately $70 per head to the value of Iowa's cattle and we hope to see that value grow under the new agreement," Olthoff said. "Adding President Trump's signature to the legislation is the final step in a long process ensuring duty-free trade with two of our top export markets for U.S. beef. We are thankful that the Senate passed the bill before the impeachment trial, and urge President Trump to sign the agreement immediately."

Brian Tuttle, a cattle producer from Granville, noted that margins are tight, so the USMCA is "important" for Iowa cattle producers, too.

"Margins are tight, so the United States-Mexico-Canada trade agreement is important for Iowa cattle producers. We're in the process of expanding our family operation with the addition of a slatted barn to custom feed cattle. If we lose these trade dollars, it would dampen further expansion and overall slow the growth of our industry in the Upper Midwest," Tuttle said.

The Iowa Corn Growers Association celebrated the USMCA agreement, noting that in 2018/2019, 21.4 million metric tons of corn and corn co-products were exported to Mexico and Canada. These exports were valued at $4.56 billion. In 2018/2019, Mexico was the top export for U.S. corn and DDGS while Canada was the top export of U.S. ethanol.

"The United States is set up perfectly to trade with our neighbors to the north and south of us," said Jim Greif Iowa Corn Growers Association (ICGA) President and farmer from Monticello. "The passage of the modernized agreement is a bright spot for corn farmers starting fresh in 2020 as exports are a key market for corn in all forms. Last year was tough for many farmers who faced an excess amount of challenges outside of our control. USMCA demonstrates the commitment for trade agreements for the United States, and ICGA will continue to work for the facilitation of free trade with partners around the world."

However, not everyone is keen on the agreement.

R-CALF USA CEO Bill Bullard said his group is "deeply disappointed" with the USMCA.

"The USMCA makes no changes at all for the largest sector of American agriculture, the U.S. cattle industry. Importers of beef and cattle will continue to have 30% more inventories of cattle from which to source cheaper, undifferentiated cattle and beef and U.S. cattle producers are left without any ability to distinguish their superior product with a mandatory country-of-origin label. This means United States consumers will not be able to choose to support United States cattle farmers and ranchers," Bullard said in a statement

U.S. Secretary Sonny Perdue commended the long-awaited passage of the agreement, noting that it is "great news for America's farmers and ranchers."

"With Congressional consideration now complete, our farmers and ranchers are eager to see the president sign this legislation and begin reaping the benefits of this critical agreement," Perdue said.

While commodity groups are rejoicing, unions and environmental groups still have concerns. Democratic presidential candidate Sen. Bernie Sanders, a Vermont independent, voted against the agreement because it did not do enough to address climate change and to protect jobs, he said.

"In my view, we need to re-write this trade agreement," he noted.

Why is the United States-Mexico-Canada-Agreement considered to be so important?

Canada and Mexico are America's first and second largest export markets for United States food and agricultural products, totaling more than $39.7 billion food and agricultural exports in 2018. These exports also support more than 325,000 American jobs.

According to the USMCA, all food and agricultural products that have no tariffs under the North American Free Trade Agreement (NAFTA) will remain at zero tariffs. Since the original NAFTA did not eliminate all tariffs on agricultural trade between the United States and Canada, the USMCA will create new market access opportunities for United States exports to Canada for dairy, poultry and eggs. The United States will offer new access to Canada for some dairy, peanut and sugar/sugar-containing products.

Phase One

The Senate's 89-10 passage of USMCA followed President Trump's signing of a partial U.S. trade deal with China referred to as "Phase One." It calls for Beijing purchasing an additional $200 billion worth of U.S. goods and services in the next two years, including soybeans, pork, cotton and wheat.

In return, U.S. officials have agreed to reduce tariffs on $120 billion in Chinese products from 15 percent to 7.5 percent. Altogether, exports to China would grow by more than $260 billion in 2020 and by $310 billion in 2021 if the deal sticks. It also provides for additional protection to American companies that have suspected of intellectual property theft.

 
 

 

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