Good and bad news has come from the front lines of the ongoing trade war with countries doing business with the United States, according to Chad Hart, associate professor of economics and crop markets specialist at Iowa State University.
“It’s good that we seem to have worked out at least a preliminary deal with Mexico and it sounds like Canada is rejoining the discussion there,” Hart said. “We’re working on NAFTA 2.0 and it’s good to see progress on that front.”
The Trump Administration announced on August 27 that a new trade deal with Mexico had been reached.
“The bad news is that we seem to be going nowhere with China,” Hart said.
Tariffs that have been put in place on Chinese and U.S. products are sticking around, he said.
In response to previous U.S. tariffs, Chinese tariffs have targeted soybeans, corn and pork, among other products.
U.S. agriculture markets have suffered as a result and the damage is “baked in, Hart said.
“At this point, in the grand scheme of things, the damage has been done at least to the commodity market with the tariffs we have right now,” he said.
“If you think about where prices were late this spring to where they are now, two big things have driven that,” Hart said. “One is the trade dispute and the tariffs going in place and the other is that we are looking at record to near-record production again across the three commodities.”
Corn prices have dropped 60 to 70 cents, soybeans have dropped about $1.80 per bushel and pork prices are down between $15 and $18 per head, he noted.
“We have some significant declines in prices due to this combination of very strong production at a time when tariffs have gone in place with a lot of our trade partners,” he said.
The Mexico deal offers hope that other trade disputes may also be resolved.
“When the (U.S.) steel and aluminum tariffs went in place with Mexico, Mexico hit back with a pork tariff,” Hart said. “Hopefully, with this agreement at least being sketched out, we will see those tariffs rescinded.”
The Mexico agreement could be a stepping stone to finishing a more-comprehensive NAFTA deal, he said.
If the Mexico deal doesn’t result in a broader NAFTA deal, it could become a stand-alone agreement.
Either process will take time, Hart explained.
“Even if we were to try to make that a standing agreement on its own, it would have to be signed by both countries and ratified by both legislatures,” he said. “It takes time for that to happen.”
The preliminary agreement should be enough to prevent further damage from the trade dispute with Mexico, Hart said.
The agriculture portion of the pending Mexico agreement isn’t significantly different than what existed prior to the beginning of the trade dispute.
“The NAFTA agreement already had basically zero tariffs on most of the agricultural trade between the three countries, with some very limited exceptions,” he said.
He expects any future agreements to include few tariffs on agricultural products.
“We could see some market improvement if we can get to a NAFTA 2.0 because that will help settle the markets down, especially for corn and hogs,” Hart said. “It would be big to get that package together because Mexico is actually a bigger market for our pork industry than China was.”
A full agreement including Mexico and Canada would help settle the markets.
“Making sure that market remains stable for us is something that is very important to Iowa agriculture,” Hart said. “That’s why if we can get NAFTA done, we can get some recovery in these prices.”
Hart is watching to see whether and how Canada re-enters negotiations.
“That would be the best news we could get right now,” he said.
He expects progress with China to be much slower to develop.
Trump suggested on August 31 that he may move forward with a plan to impose tariffs on an additional $200 billion in Chinese imports.
The Chinese government said in July, when Trump first proposed the additional tariffs, that the country would retaliate if the tariffs went into effect.