It’s been one month since President Donald Trump took office, and we’ve already seen a dozen wide-ranging executive orders. One of the most-asked questions I’ve received about the new president is whether I believe the United States’ withdrawal from the Trans-Pacific Partnership (TPP) will have a negative and lasting effect on U.S. farmers.
What is the Trans-Pacific Partnership?
The TPP is an agreement between “Pacific Rim” countries providing a large number of benefits for all countries involved. It was meant to give the U.S. a leadership role in future trade with Pacific Rim countries, before a country like China establishes its own standards of trade between those countries. It removed over 18,000 tariffs, including a removal of all tariffs on U.S. manufactured goods and almost all U.S. farm products. A decrease in taxes on products results in lower prices on the importer’s end, often encouraging increased sales. Trump campaigned against trade deals like the TPP, blaming them for the loss of manufacturing jobs by enticing companies to relocate factories to places like Mexico. The TPP is the first trade agreement to focus on the needs of small and medium-sized businesses.
The twelve countries involved in the TPP were:
- United States
- New Zealand
Many of the above countries still wish to continue with the agreement, while others are saying without the United States’ involvement, there isn’t much point to the agreement. While the U.S. has withdrawn from the TPP, another trade agreement, the Regional Comprehensive Economic Partnership (RCEP) between China and other Pacific Rim countries is currently taking place. This should be concerning for U.S. farmers, as there is a strong incentive for Japan to purchase Chinese corn with lower trade barriers. Reduced freight cost would be a strong incentive for Japan to increase its imports from China. Agricultural product tariff rates average 19 percent in Japan, now that the U.S. has withdrawn from the TPP, how can we expect this to affect U.S. agricultural exports?
How will the U.S. withdrawal affect farmers?
The US withdrawal from the TPP may not be a positive thing for US farmers. Japan, the largest corn importer in the world, is also the largest importer of US corn with 80% of their corn imports from the US. Mexico is right behind Japan in the world while also being the United States’ second largest importer of corn with almost all their corn imports coming from the US.
Consumers are affected as well
Mexico hasn’t been very impressed with President Trump lately either. After Trump threatened Mexico with paying for a border wall, Trump stated he would impose a tax on Mexican-made products. This affects U.S. consumers, which will result in more expensive Mexican-made products such as vehicles and even groceries. News in recent days is that Mexico has introduced a bill that will change Mexico’s corn imports to Brazil or Argentina. This would have a large effect on the U.S., as when the North American Free Trade Agreement (NAFTA) took place in 1995, the U.S. exported just $391 million; exports in 2015 were valued at $2.4 billion. While Mexico can’t block imports from the United States without violating NAFTA, President Trump has stated that he would like to negotiate the treaty, which does add uncertainty to agriculture markets.
With the TPP, the United States had a large role with global policies in other countries, such as the crackdown on human trafficking on Malaysia, ensuring worker and food safety, and to even ensure an open and free internet. A large selling point of the agreement was to force the members to meet the United States’ working and regulation standards. The TPP ensured tough customs provisions on their products’ location of origin, to help the U.S. combat illegal shipments, including seafood. Asia’s middle class is projected to reach 3.2 billion people by 2030, and those consumers are the ones who will be driving demand for American made products.
All we can do is wait to see what kind of effect Trump’s actions will have on U.S. farmers. Right now it is unclear what the lasting impacts will be of the United States’ withdrawal from the TPP, or what Trump’s next course of action will be. It is unlikely however that he will make many moves to hurt U.S. agriculture exports, as agriculture is the backbone of the U.S. economy.
Ryan Kuster, the force behind the informational and insightful YouTube channel How Farms Work, is a beef and crop farmer based in Wisconsin. He created his channel in 2012 to help show non-rural people how farming is done in the Midwest. Ryan’s website can be found here, and he’s on Facebook, and Twitter.