President Trump made a comment recently that “it was the calm before the storm” without referencing what he was specifically referring too, liking as he does, to create suspense. It could have been a reference to his lack of certification of the Iran deal, military action against Kim Jong-un if “rocket man” continues to act up, or a trade disruption as his trade negotiators attempt to apply leverage against all of our trade partners.
Having threatened to drop both NAFTA and KORUS, he has the US Ag sector on as much edge as he does Mexico and South Korea. Threats are typical negotiating tactics for him but sometime he has to follow through on something threatened or they will not work as he intends. The fact that his advisors council him one way does not mean he will not go the other. He went the opposite of his advisors on the Paris climate accord and now on the Iran nuclear deal. He makes the final decisions.
Progressive Farmer Magazine called ag concern over NAFTA, “NAFTA Angst.” As a general statement, farmers and the ag sector heavily supported Trump representing enough weight to have made the margin of victory last November. They did so while hearing him promise to withdraw from TPP which the ag sector supported and call NAFTA “the worst trade deal ever” all the while knowing that it was a very good deal for the ag sector and they were putting trade at risk.
He also blasted Japan, China and South Korea for trade deficits – each being primary trade partners critical to US ag markets. There was this general idea that he would get talked back from the edge of destroying ag trade by smart advisors. Iowa Governor Terry Branstad becoming ambassador to China and Sonny Purdue being named Ag Secretary, who pulled in pro-trade subordinates to USDA along with him, gave the Ag sector some confidence that Trump would not overreach. Purdue reportedly talked Trump out of canceling NAFTA once but it is not over yet. Trump’s primary trade negotiators could care less about the Ag sector, focused on what they think are bigger trade issues. My impression is that they would have no trouble whatsoever throwing Ag under the bus on trade to get what else they want.
I previously stated my concern this way:
Farmers voted for Trump because they were tired of government regulation and Trump promised to cut or eliminate things like WOTUS. They wanted a pro-business administration and he appears to be delivering on that promise. Not so in the case of his promise to support biofuel taken by Scott Pruitt’s recent action having the EPA roll back the RFS. It remains to be seen whether that was due to a lack of subordinate supervision or a false promise. For sure Trump’s EPA has done nothing to show any support for biofuel such as authorize a vapor waiver for E-15 like E-10 has for summer marketing.
In a pro-biofuel Trump administration, Iowa Senator Chuck Grassley should not have to go on the Senate floor and demand a meeting with EPA administrator Scott Pruitt to defend the RFS. While Trump says that he supports ethanol, there is nothing whatsoever to show that. By raking our trade partners, who are critical to supporting US net farm income over the coals, even linking geopolitical foreign policy to trade, our trade relationships that the Ag sector depends upon have never been more strained. Trump’s immigration policy is also a problem for the ag sector and is contributing to a building labor crisis. The statement that I made previously is that Trump would do things for the ag sector that made them millions while doing things to the ag sector that could cost them billions. I still stand by that statement.
The ag sector economy is at risk and the farm organizations and commodity groups know it. Ag Secretary Sonny Purdue is very focused on NAFTA negotiations, looking out for our interests as best as he can. As noted, Trump only listens to advisors when he wants to. USDA has been flooded with comments of concern from the ag sector making sure that they know how critical these export markets are to us. USDA gets it but what that is worth has not been tested yet.
When I talk about billions, China spends more on US soybeans than they do Boeing airliners. Mexico bought $2.6 bln of US corn, $1.5 bln of soybeans, $2.4 bln of red meats, $1.22 bln in dairy products and another $1 bln in prepared foods. The trade deficit with Mexico is 9.5 percent of the total trade between us and what would you expect from a 30 mln population selling into a market of 324 mln? If there were no trade deficit then Mexicans would be pretty lazy. They are not lazy and the most industrious of them are working ag jobs in the US that Americans don’t want.
Ag Secretary Purdue understands the potential of Asian markets which has “many mouths to feed” yet TPP was a solid benefit to gaining access to those mouths that was voluntarily rejected by the new administration. I think that the tree is going to get shook harder and Ag interests are hoping that they do not get shook out of it. When the president says that the past few highly turbulent months have been “calm” and that there is a “storm” ahead it is very hard to take any solace in that. Donald Trump thinks that all of our current trade relationships are unfair and that we have been the losers. We have yet to see what his impression of winning looks like.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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