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Light at the end of the tunnel?

Officials are optimistic tensions over tariffs and the trade war with China may be improving
Story by: Glen Liford 2/25/2019

Discussion of tariffs and the trade war and how they affect agriculture has been among the hottest agricultural headlines for the past year. How these issues affect agriculture, and Tennessee farmers specifically, was among the many pertinent presentations at the East Tennessee Grain Conference. The event, staged by the University of Tennessee Agricultural Extension Service, was held Jan. 24 at the First Baptist Church in Lenoir City.

Topics on the program included performance of corn hybrids and soybean varieties in Extension’s statewide field trials, effective soil sampling and fertility needs, and cover crops. Farmers also had the opportunity to attend a session on dicamba training to maintain or earn their certification. 

While all the topics on the agenda were important, Dr. Andrew Muhammad’s discussion of trade and tariff issues reflected the urgency that producers are feeling as they consider 2019 planting decisions amidst the discussion of tariffs and the ongoing trade war with China.

Dr. Muhammad is professor and Blasingame Chair of Excellence in Agricultural, Food, and Natural Resource Policy, with the University of Tennessee Institute of Agriculture’s Department of Agricultural and Resource Economics. He previously served as the associate director of the Market and Trade Economics Division and the chief of the International Demand and Trade Branch at the USDA Economic Research Service before joining the University of Tennessee last year.

Dr. Muhammad’s presentation emphasized how important exports are to agriculture. Ag exports account for one-fifth to one-fourth of the United States’ agricultural production. In 2017, agricultural and related exports amounted to $157.7 billion, according to the most recent statistics available from the USDA Economic Research Service.  While exports are more important to certain categories, such as corn, soybeans, beef, pork, and poultry products, the lesson is that international trade is vital to agriculture, he stressed.

“One of the things that you hear the [Secretary of Agriculture] say is that even though we run a trade deficit [as a whole], in agriculture we run a trade surplus,” said Dr. Muhammad. “We export far more than we import.”

That trade surplus is narrowing, however, and he stressed that USDA is forecasting it to narrow even more.

“The five countries that are our most important for agricultural exports are Canada, China, Mexico, Japan, and South Korea,” he said. “And we have had issues with all five.”

The trade situation with China gets most of the press, along with the detrimental effects of the tension and increased tariffs, but there are numerous bright spots in

the exports of agricultural products, he emphasized.

In spite of the decrease in soybean exports to China due to the trade dispute, there has been an effort to offset negative impacts by diverting additional exports to other countries. Specifically, he said, exports of soybeans to the European Union have more than doubled this season to 5.2 million bushels.

“In a comparison of where the EU sourced its soybeans this year compared to the prior year, that amount is beyond double and we account for a much larger share of the European market,” he says.

Progress, too, has been made on several international trade agreements, including:

• The United States-Korea Free Trade Agreement, also known as KORUS.

• The new United States-Mexico-Canada Agreement (USMCA), which         has been proposed to replace the NAFTA (North American Free Trade         Agreement). “The question is will a Democratic Congress move forward?” he said. “Or will they challenge the president on his threat to withdraw from the original agreement?”

• A bilateral agreement with Japan could prove important to United States meat exports. The key will be whether negotiations will include tariff reductions similar to what Japan approved with Australia.

• The EU and UK agreement could also open up additional opportunities,    though it’s not apparent whether agriculture products will be included.

The situation is fluid, Muhammad stressed. The White House seems to be indicating that the situation is improving, and there seems to be some light at the end of the tunnel.

“But every time I think something positive, a negative tweet comes out,” he said. “And every time I begin to think negative, a tweet comes along that appears positive.”

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