A Lot of Uncertainty Surrounding U.S. Trade Outlook01/20/2017
U.S. agriculture faces 2017 with uncertainty surrounding trade, and trade policy in disarray. After years of bipartisan support for trade agreements and record-breaking agricultural exports and imports, there are many unknowns for the coming year.
Several factors are causing concern — the strengthening U.S. dollar, and economic woes among trading partners, to name a couple. However, the U.S. presidential campaign has highlighted, more than other events, the frustration of many Americans who blame trade and trade agreements for their declining economic situations and diminished quality of life.
Canada, China, and Mexico will continue to be the top markets for U.S. agricultural products in 2017. As President Trump settles in, markets await implementation of his promises to renegotiate the North American Free Trade Agreement (NAFTA) and backing out of the Trans-Pacific Partnership (TPP).
NAFTA has been very positive for U.S. agriculture and most other sectors. Any attempt to change NAFTA, which has been fully implemented for nine years at the beginning of 2017, would likely be met with stiff bi-partisan resistance on Capitol Hill.
TPP countries have been key components in record-breaking U.S. agricultural exports in the past few years. East Asia and China account for about half of all U.S. agricultural exports. Trade leadership in the Asian-Pacific countries could go to China if the U.S. backs out.
To further highlight this, three-fourths of U.S. cotton is exported, and its top five markets include China, Vietnam, Mexico, and Indonesia. Nearly half of U.S. wheat is exported, and its top five markets include Japan, Mexico, Philippines, and South Korea. One-fifth of U.S. pork is exported and the top five markets are Mexico, Japan, China, Canada, and South Korea.
Thus, tinkering with both NAFTA and TPP, or placing barriers on imports from China as Trump promised during the presidential campaign, could have serious implications for U.S. agriculture.
Corn exports remain relatively strong, while there are declines in soybeans, wheat, and cotton. Pork remains relatively strong, with some decline in beef, and more serious declines in poultry and dairy. Fruits and vegetable exports are down slightly, while imports remain strong. The USDA forecasts 2017 volume gains for soybeans, corn, cotton, and most livestock and poultry.
TRADE: LITTLE RELIEF
Macroeconomic policy also looms large for U.S. trade. The Federal Reserve will likely increase interest rates, while the federal government will reduce taxes and increase spending.
The U.S. dollar will likely remain relatively strong in 2017, limiting resurgence of U.S. exports, or even decreasing exports.
The general U.S trade deficit has fluctuated over the past five years, and saw a multi-month low in late 2016. However, the general trade deficit is likely to increase in 2017, with little relief from agricultural trade. While U.S. agricultural trade is down from record-breaking 2014, it remains higher than in most of the previous decades.
By the end of 2017, U.S. farmers and ranchers will have a better sense of the benefits and costs of likely gains from reduced regulations and the losses from reduced trade.
(Dr. Larry D. Sanders is Professor and Economist, Policy and Public Affairs, Oklahoma State University, Stillwater. Dr. Luis Ribera is an Associate Professor and Extension economist in the Department of Agricultural Economic at Texas A&M University, College Station.. He also serves as the Program Director for International Projects for the Agricultural and Food Policy Center.)
Source: Dr. Luis Ribera, Larry Sanders, Southwest Farm Press