2020: An Active Year for Trade?

The new year is fewer than 10 days old and already promising to hold new twists and turns for trade, particularly as policy debates, presidential politics and geopolitical issues heighten ahead of the November elections.

 

Here’s a quick review of movement that could impact sales of U.S. grains and related products, including distiller’s dried grains with solubles (DDGS) and ethanol, in 2020 and the years to come:

 

The U.S.-Mexico-Canada Agreement (USMCA) continues to move toward ratification in the U.S. Congress, having already been approved by Mexico and with Canada set to consider the agreement later in January. If these timelines hold, USMCA could be in force by spring, restoring certainty to the trade relationships with the closest and largest U.S. grains trading partners. In addition, the agreement will serve as a blueprint for future trade agreement negotiations.

 

A phase one agreement with China is expected to be signed on Jan. 15 and go into effect within 30 days. The agreement reportedly includes a commitment by China to purchase $40 billion to $50 billion in food and agricultural products over the next two years. Though details are yet to emerge, it is anticipated that China will exempt the current retaliatory tariffs and remove other trade-distorting tariffs as part of this package. Equally important, China agreed to provide structural reforms to remove major non-tariff barriers subject to monitoring, review and enforcement mechanisms.

 

On Jan. 1, the phase one trade agreement between the United States and Japan became effective, leveling the playing field for U.S. agricultural products competing there with products from the European Union (EU), Canada, Australia and New Zealand – all of which already enjoy trade preferences with Japan. The agreement will eliminate tariffs, enact meaningful tariff reductions or allow a specific quantity of imports at a lower duty for key U.S. ag products. A broader, phase two negotiation is expected to begin in April.

 

The United Kingdom‘s (UK) expected departure from the EU on Jan. 31 will tee up negotiations for a potential U.S.-UK free trade agreement. A deal with the world’s fifth largest economy would offer opportunities for free and fair trade, strengthen the transatlantic economic and strategic relationship and help promote economic growth in the European region. At the same time, the UK must determine what its future trading relationship with the EU will entail, particularly whether it wants to align itself more closely with EU or U.S. regulatory standards in areas ranging from agriculture to the environment.

 

Since failing to initiate formal trade negotiations over the last 18 months, the United States and EU have become entwined in numerous trade policy disputes, the most prominent involving a long-running World Trade Organization (WTO) fight over EU government support for Airbus and the EU’s counter-complaint against U.S. support for Boeing. Yet another dispute involves potential duties in retaliation for France’s new digital services tax. Whether these disputes – along with existing tariffs on aluminum and steel and threatened tariffs on autos – will move both sides to engage in a full-fledged bilateral free trade agreement remains to be seen. With a newly formed European Commission in place, EU Trade Commissioner Phil Hogan and U.S. Trade Representative Robert Lighthizer are expected to meet in mid-January.