Bipartisan Effort from Congress Wants to Lower Tariffs. What Does It Mean for California Ag?

• Rep. Jim Costa (D-Fresno) is calling on the USDA and USTR to coordinate to get foreign countries to reduce tariffs on ag products.
• Increased access to foreign markets could buoy collapsed commodity prices among specialty crops.
• Former President Donald Trump said he wants to tax all Chinese goods 60%, something one analyst said would be catastrophic.

A bipartisan group of lawmakers wants a new trade strategy to reduce tariffs in hopes to get more American agricultural products back into foreign markets.

Spearheaded by representatives Jim Costa (D-Fresno) and Jimmy Panetta (D-Santa Cruz), the Congressional Agricultural Trade Caucus penned a letter calling on the U.S. Department of Agriculture and U.S. Trade Representative to come up with a coordinated effort to get countries to lower their trade barriers.

The co-chairs of the caucus include representatives Adrian Smith (R-Nebraska) and Dusty Johnson (R-South Dakota). Representatives John Duarte (R-Turlock) and Josh Harder (D-Stockton) also signed the letter.

“We write to urge the Biden Administration to make agriculture a priority in its trade agenda by reducing tariff and non-tariff barriers for American agricultural exports,” the letter reads. “U.S. farmers and ranchers can feed the world, but tariffs and discriminatory barriers aimed at undermining American competitiveness remain a challenge.”

Joel Nelsen, president of American Pistachio Growers, said that growers have suffered because of a lack of focus on U.S. trade strategy. Whereas previous administrations regularly consulted with trade groups such as the Pistachio Growers, Nelsen said that under President Joe Biden, consultations with private ag groups declined.

And, with drastically low commodity prices for farmers, opening up new markets could help stabilize food prices.

One of California’s largest almond growers declared bankruptcy this month in part because of lowered commodity prices.

“There needs to be more of a focus on tariffs because too often countries try to impede our ability to bring a quality product into the marketplace by making it too expensive,” Nelsen said.

Growers Could Once Rely on Hungry Chinese Middle Class, Not So Much Anymore

Before the 2018 trade war that began under the Trump administration, foreign trade had been increasingly easier for exporters, according to Erica York, senior economist at The Tax Foundation, a non-partisan tax policy nonprofit.

Trump imposed a variety of tariffs to increase competitiveness of the U.S. manufacturers, including steel.

In the case of Chinese tariffs, Trump sought protection of intellectual property.

“Prior to the Trump administration, tariffs had been on a steadily declining path for decades and decades,” York said. “The Trump administration came in and, you know, fundamentally altered the approach on tariff policy that the United States had taken.”

In response to tariffs on steel and aluminum, the European Union, China, and several other countries responded with their own tariffs, largely on U.S. agriculture.

Virtually all of those losses (95%) were in the Chinese market, where the country imposed a variety of tariffs ranging from 2.5% to 25%, according to the USDA.

With the absence of American produce, cheaper produce from developing countries filled the void, Nelsen said.

The USDA estimates ag export losses totaled $27 billion from 2018 through 2019. Specialty crops — the fruits, nuts, and vegetables grown in the Central Valley — made up 6% of losses, or around $837 million.

Growers have made back up a lot of the lost ground since those tariffs, said both Nelsen and Casey Creamer, president of California Citrus Mutual.

However, the effects are still being felt. Growers have had to rely more on markets, Creamer said. Where 70% of the citrus crop would be sold domestically, the rate is now approaching 80% domestic.

Trump provided significant subsidies to farmers to help offset losses in foreign markets.

York said those programs came at taxpayers’ expense. Some in the ag industry accepted the cost of tariffs and were Ok being made whole by subsidies. Others didn’t want government money and would rather have been able to sell competitively, York said.

“So, it just brings up this additional issue that we do see with tariffs is that it creates real losers,” York said. “If you compensate the losers, it increases the cost of the policy overall. And so it’s just a really inefficient economic strategy.”

Trump Tariffs Largely Unchanged During Biden Administration

Trump’s trade strategy went largely unchanged once Biden took office, York said. With only a couple of exceptions, tariffs on foreign are largely still in place. A tariff on washing machines expired. Biden updated the steel and aluminum tariff to allow some imports in before the tax kicks in.

“We have seen the Biden administration just keep them in place, so that gives us an indication that, you know, maybe they think it’s a useful tool,” York said.

What’s more, growers’ association representatives say the Biden administration lacks a coherent strategy.

Throughout the George Bush, Barack Obama, and Trump presidencies, the USTR and USDA would assemble groups of experts from various commodities to create a unified trade strategy. Nelsen said that worked well.

“I don’t care whether we’re talking cut flowers to fresh fruits and vegetables to grain to animals,” Nelsen said. “They would meet regularly and review what was going on in the foreign market situation and then suggest direction to USDA and USTR for negotiations.”

Nelsen said private groups have been consulted significantly less during the Biden administration.

What’s more, the USTR agency lost much of its ability to negotiate deals when the Biden administration let the Trade Promotion Authority expire in 2021.

Most free trade agreements are implemented under the TPA, York said. In a situation like this, a president would seek reauthorization of the TPA through Congress, but Biden has not done that.

“The Biden administration has pursued some initiatives using ‘executive agreements,’ but those can’t change U.S. laws or statutes,” York said in an email. “For anything like a new comprehensive (Free Trade Agreement), we would need to see TPA reauthorization.”

Trump Said He Wants 60% Tariff on All Chinese Goods

Several news agencies reported Trump as saying he would impose at least a 60% tariff on Chinese imports if he returns to the White House.

Through 2018 and 2019, the Tax Foundation found tariffs cost U.S. consumers $80 billion. In the face of import tariffs, some foreign sellers may lower their prices to keep their products competitive. But York said they didn’t see those prices change, which means the additional cost was borne by consumers.

“That’s a mix of business consumers that are buying inputs to use in their business process, in some cases, businesses pass those costs onto their retail consumers,” York said.

York said a 60% tariff would essentially cut off trade.

“If we did overnight cut off trade with China, the ramifications would be far and wide and negative,” York said.

Simulations of cutting off trade entirely — similar to a 60% tariff — show costs in the trillions of dollars. Businesses would lose suppliers. Direct consumer goods from China would be far more expensive.

“We would lose access to capital goods, that’s like the machines that businesses use to do what they need to do, or it’s you know, a fryer that a restaurant buys that produces the food that it’s serving to its customers. All of that could end overnight,” York said.

Export Markets Necessary for Low Food Prices

The letter from the ag caucus states that U.S. growers can’t rely on the domestic market alone for their products. While oversupply does drop food prices in the short term, the Tax Foundation study shows that efficient production levels demand stable prices.

“If their access to a foreign market is limited due to another country’s tariff policies, their profits will fall and they will invest less in future production, which would lead to higher prices in the long run,” the study states.

The 1 billion pounds of pistachios forecast for the 2023 season made it the biggest ever.

Seventy percent of the pistachio market goes to foreign markets, said Jim Zion, managing director of Fresno-based Meridian Growers. The largely plant-based diet in India has made the country one of the most important markets.

“We haven’t run out of consumers, we just need to get access to them,” Zion said.

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Source: GV Wire

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