Donald Trump’s confrontational trade policy has already cost American farmers billions of dollars in lost sales due retaliatory tariffs imposed by China. Now they’re bracing for a different kind of loss: missing out on tariff reductions and other perks under a massive new trade deal among Pacific Rim nations.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), will go into effect on Dec. 30 for six of its 11 members, Australia, Canada, Japan, Mexico, New Zealand, and Singapore. A seventh, Vietnam, will join them Jan. 14. (The remaining countries, which have already signed the deal, still have to ratify it internally.)
The first set of tariff cuts will be effective immediately, with another round following a couple of days later in most countries. (Japan’s second round will happen in April.)
US meat and grain exports will instantly become less competitive in the CPTTP markets. Farm trade groups are particularly worried about losing share in Japan, a huge buyer of American agricultural products.
It’s exactly the opposite effect American architects of the deal had in mind. The agreement, which began its life as the Trans-Pacific Partnership, or TPP, was spearheaded by the US, and signed in 2016 by Barack Obama. A key goal was to expand US market share in Asia.
Donald Trump withdrew the US from the deal shortly after taking office, saying it would hurt American workers. He now wants to negotiate a bi-lateral deal with Japan, but talks haven’t yet started.
In the meantime, here are some of the CPTPP benefits that American producers will miss out on:
American meat producers stood to gain a hefty tariff cut the first day of the agreement, from 38.5% to 27.5% on certain beef products, and eventually down to 9% by the 16th year of the deal. US-produced pork, too, would have become immediately cheaper. Japan would have lowered its tariff to 2.2% from 4.3% at the start, and gradually reduced that to zero.
By 2026, the year by which TPP would have been fully implemented, exports of beef and pork had been expected to grow by nearly $2 billion, according to a study by the American Farm Bureau Federation.
A separate assessment, done by the US International Trade Commission by congressional mandate, estimated overall agricultural exports would jump by nearly 3%, or $7.2, billion by 2032 under TPP. (Imports into the US were expected to expand by 1.5%, or $2.7 billion.)
The TPP gains were expected to spill over into the whole agriculture sector, increasing production by an estimated $10 billion by that year.
Abandoning TPP doesn’t just leave all those potential gains on the table; it threatens to eat into US farmers’ current business, they say.
Take wheat as an example. The only Japanese importer of the grain is the Ministry of Agriculture, Forestry, and Fisheries, which resells it at a hefty markup. (Other importers are subject to prohibitive tariffs.)
As soon as CPTPP goes into effect, the ministry will slash its markup for wheat from member countries by 7%, according to US Wheat Associates, a trade group that promotes wheat exporters. It will go down by another 5% in April, when the second round of Japanese cuts kicks in.
That will make Canadian and Australian wheat $14 cheaper per metric ton than American wheat, according to the group. And that difference will only grow larger as CPTPP benefits are phased in. By 2020, US wheat will cost $70 per ton more than its competitors.
If the US doesn’t do anything, the group’s president, Vince Peterson, told the Office of the US Trade Representative during a public hearing earlier this month, the market for American wheat will be gone well before then.