The big news for farmers and ranchers this week was the signed partial trade deal between the United States and Japan focusing on agriculture.
This Wednesday (9/25/2019) President Trump and Prime Minister Shinzo Abe signed an ‘interim’ or ‘partial’ trade deal with Japan that focuses heavily on agriculture and digital trade. The terms of the deal are set to take effect in January, 2020, with the prospect for continued negotiations in other sectors beginning later in the year.
The Trade Deal
The trade deal will provide greater access to the Japanese market, the third largest export partner in total value ($14.8 billion) for U.S. agricultural goods in 2018 according to Foreign Agricultural Service (FAS) data. The only two countries to top Japan in 2018 were Canada ($24.6 billion) and Mexico ($20.5 billion). From 2012 to 2016, China was the top U.S. agricultural export destination in value.
Prior to 2016, the U.S. was negotiating entry into the Trans-Pacific Partnership (TPP), which would’ve made it part of a 12-member trade bloc around the Pacific Rim. The Trump administration withdrew from the TPP, and since that time the U.S. has been subject to tariffs on certain exports to Japan (along with other TPP member-nations). (See my previous post about how tariffs work, here) The partial trade agreement signed on Wednesday will effectively reestablish the terms of the TPP between the U.S. and Japan and open their market to our agricultural products.
The lowering of tariffs means that goods leaving the U.S. destined for Japan will be relatively cheaper for Japanese consumers. A more competitively priced U.S. good, say beef, makes it relatively more attractive to Japanese consumers compared to, say, Australian beef. I always like to return to fundamentals; when the price of a good goes down (in this case due to the elimination of tariffs), the quantity demanded increases.
U.S. Trade with Japan
Agricultural trade between the U.S. and Japan is impacted by the same things that impact trade with most countries; domestic supply of a certain good, exchange rates, and tariff and non-tariff barriers. You can see from the chart above that the bulk of the value derived from products exported from the U.S. to Japan in 2018 came from ‘Grains & Feeds’, ‘Livestock & Meats’, ‘Horticultural Products’, and ‘Oilseeds & Products’.
My very simple projection of total value of U.S. exports to Japan in 2019 shows a year-over-year decline compared to 2018. Given that the terms of the agreement do not take effect until 2020, that could still be the case, however we would expect the value of exports to Japan to increase in 2020 as a result of the deal.
Why Does the Deal Matter in Texas and the High Plains?
The Global Agricultural Trade System (GATS) allows users to query different trade values between the U.S. and other countries. Users are able to break out trade in individual product groups to a single country.
If we break down individual categories of export from the U.S. to Japan, we see a lot of products produced en masse on the High Plains. In 2018, corn exports to Japan were valued at $2.8 billion. Wheat exports, wheat flour, and wheat products were valued at $745.7 million. Beef and beef products, beef variety meats, and cattle hides were valued at $2.1 billion in total. Cotton and cotton related products exported to Japan in 2018 were valued at $20.4 million. Dairy products exported to Japan in 2018 amounted to $285 million.
Even if commodities produced here on the Texas High Plains do not find an end use in the Japanese market the trade deal is a good thing for our region. Increased consumption of beef by Japanese consumers lowers overall surplus available in the U.S. and has the end result of increasing the price that producers receive.
Upcoming Dates
September 30 – Crop Progress, NASS
September 30 – Grain Stocks
October 4 – U.S. Employment Data
October 10 – WASDE, OCE
January – Expected Tyson Holcomb plant reopening
In the News
Feedstuffs – President Signs Trade Deal with Japan
United States Senate, Committee on Agriculture, Nutrition, and Forestry – Perspectives on the Livestock and Poultry Sectors