Ongoing trade issues will have accumulating effects as more time passes, said Derrell Peel, Oklahoma State University Extension livestock marketing specialist in a letter to Extension agents, but it’s impossible to know the full effects.
Many agricultural markets have been affected by tariff wars, and the damage will grow and spread unless resolutions are forthcoming promptly, he said. And evolving market dynamics make it easy to underestimate how the effects and costs of trade issues will continue to grow in 2019.
THE MOST OBVIOUS EFFECTS
The most obvious effects of trade wars are the tariffs and disruptions in trade in specific markets, Peel said. This includes agricultural markets, in particular soybeans and pork as a result of reciprocal tariffs with China, and pork and dairy from retaliatory tariffs stemming from US tariffs on steel and aluminum.
The new NAFTA (US-Mexico-Canada Agreement) agreement is not yet ratified and implemented, but much of the benefit is negated by those other tariffs.
The economic effects of tariffs initially may be limited mostly to changes in margins if the disruptions are perceived to be short-lived, Peel said. Later effects will evolve into larger and more permanent adjustments.
With more time and on-going uncertainty about trade issues, an increasing amount of tariff costs are passed on to buyers; alternative product flows develop, and lost market share becomes much more difficult to undo, he said.
LOST OPPORTUNITIES MORE DIFFICULT
Even more difficult to measure are the lost opportunities associated with trade issues, Peel said. It’s difficult to know how much is lost from something that was never posessed.
For example, he said, the US withdrew from the Trans-Pacific Partnership two years ago. The remaining eleven countries continued and launched the revised TPP this year.
Not only does the US not have the benefit of tariff adjustments and increased market access with TPP, going forward the US increasingly will be less competitive and likely lose ground relative to TPP participants, Peel said.
The stated US intention to negotiate bilateral trade deals with Japan and others has so far not resulted in new agreements or even serious discussions, he said. Any agreements that may result are many months, if not years, away.
In China, the US beef industry had barely begun to build on the market access achieved in 2017 before tariffs hit last year, Peel said. What was expected to be a lengthy process to grow market share for US beef is now at a standstill.
The tariffs didn’t result in a significant direct effect since little US beef was exported to China, but it certainly is restricting any chance for US beef to participate in the growing Chinese market.
Finally, the uncertainty of global trade turmoil takes a significant but largely unmeasurable toll on the economy, he said. It is nearly impossible to know how much trade and investment has been postponed or abandoned as a result of trade uncertainty the past two years.
CATTLE, BEEF RECAP
Cash cattle traded last week at $122 to $123 per cwt on a live basis in the Plains, steady to down $1 from the previous week. Dressed-basis trades were reported at $194 to $195, also steady to down $1.
The USDA choice cutout Thursday was up $0.12 per cwt at $213.96, while select was up $1.30 at $207.77. The choice/select spread narrowed to $6.19 from $7.37 with 100 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday, was $145.55 per cwt, down $0.15. This compares with Thursday’s Jan settlement of $146.75, down $0.07.