The farmers of America, already hit by low commodity prices and punitive trade tariffs of China, are poised to endure further pain in 2019 now that a major Pacific trade deal has come into effect.
The Comprehensive and Progressive Agreement for Trans-Pacific Pacific Partnership, or CPTPP, was ratified by seven of its member countries on Sunday. Now that the massive free trade pact is a reality for Australia, Canada, Japan, Mexico, New Zealand, Singapore and Vietnam, the remaining four members — Brunei, Chile, Malaysia and Peru — are soon expected to follow suit.
The milestone agreement, a refurbished version of the Trans-Pacific Partnership, will slash tariffs among the 11 nations that cover 14 percent of global growth, making their exports cheaper in each other’s markets.
Around 90 percent of planned tariff cuts will be immediately take place, HSBC said in a note on Sunday, adding that businesses will benefit from reduced administrative costs thanks to other benefits such as pre-arrival customs clearance.
A threat to American goods
The goods of non-CPTPP members such as the United States are now expected to be pricier and less competitive in the 11 CPTPP countries.
The world’s largest economy was initially one of the countries negotiating the wide-ranging deal under former U.S. President Barack Obama but the U.S. withdraw under President Donald Trump’s administration in early 2017.
American meat and agricultural products are particularly expected to suffer in CPTPP nations that don’t have free trade arrangements with Washington.
Japan is a prime example. The Asian giant is the top market for U.S. beef, but Australia’s products could now take over America’s spot since foreign beef tariffs in Japan will be cut by 27.5 percent for Australian producers under the CPTPP, The National Cattlemen’s Beef Association has warned.
“The US beef industry is at risk of losing significant market share in Japan unless immediate action is taken to level the playing field,” Kevin Kester, the association’s president, said in a statement earlier this month.
Canadian and Australian wheat exports to Japan now immediately benefit from a 7 percent drop in the Japanese government’s mark-up price, which will become a 12 percent reduction in April, U.S. Wheat Associates President Vince Peterson said in a recent statement.
By April, American wheat will face a $14 per metric ton resale price disadvantage to Australia and Canada, he warned, adding that his industry faces “imminent collapse” in Japan.
The U.S. and Japan don’t have a free trade deal in place, something on which Trump has been pressing Tokyo. In comparison, European nations, which also aren’t part of the CPTPP, are expected to fare better given the E.U-Japan bilateral trade deal.