Impacts of Chinese Tariffs on Soybeans and other Ag Commodities and the Renegotiated NAFTA Agreement
Wallace TynerPurdue University
In collaboration with Farzad Taheripour, Dominique van der Mensbrugghe, and Maksym Chepeliev
January 11, 2019
• Comparative advantage– 18th & 19th Centuries—Adam Smith, David
Ricardo• Most economists would argue that the net gains
from free international trade are positive.• However, when there is a change in trade policy,
there generally are gainers and losers. • Often those who gain are more dispersed, and
those who lose are more concentrated.
What do economists think?
2
US tariffs have never been lower…
3
And tariffs are low in most parts of the world
4
Global trade has outpaced global output
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20000
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
billio
n $2
010
World merchandise export, constant $2010
Source: World Trade Organization, World Bank
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2
4
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18
1960
1963
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1960
=1
World merchandise export vs GDP (1960=1)
World merchandise…GDP
Source: World Trade Organization, World Bank
Large rise in agricultural trade, particularly post-2000
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1980
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billi
on $
2010
World agricultural export, constant $2010
Source: World Trade Organization, World Bank
0
50
100
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250
1980
1983
1986
1989
1992
1995
1998
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billi
on $
2010
US agricultural trade, constant $2010US agricultural exportUS agricultural import
Source: World Trade Organization, World Bank
• +1-2% of GDP from efficiency gains– Ignores dynamic effects (productivity, innovation,
pro-competitive, increased varieties)• There are nonetheless winners and losers
– Those negatively impacted are typically easy to identify, the benefits are more diffuse
• Gains should be sufficient to help displaced workers– Re-training, re-localization– But implementation has typically been deficient
Assessing benefits/costs from free trade
7
• Still an open question– Consensus is that productivity improvements
account for up to 80% of job losses in manufacturing
– In other words, a good bit of the job losses that have been blamed on trade are due to capital substitution for labor, not imports for domestic goods.
Trade vs. technology
8
• Negotiated multilaterally– Implies countries see mutual
benefit (not necessarily always purely economic)
• Most tariffs are too low to matter, currency movements and trade impediments (e.g. ports, logistics, procedures, standards) are likely to be a bigger hindrance to trade
• Countries do not always play by the rules, but there are remedies
Is the trading system fair?
9
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Exchange rate vis-à-vis US dollar
AUS
CHN
KOR
CAN
MEX
JPN
DEU
• Our aim was to estimate the medium term impacts of Chinese imposition of a 25% tariff on US soybeans, corn, wheat, sorghum, and beef.
• The study was funded by the US Soybean Export Council
China Tariff Study Objectives
China is World’s Largest Soybean Market
• China imported 93.5 MMT in 2016, about 65% of global soybean imports.
• These imports mainly come from US (42%), Brazil (44%), and Argentina (9%).
• In 2016, total US exports were 59.2 MMT and for Brazil 63.1 MMT.
US Soybean Exports – Major Destinations
US and Brazilian Soybean Production Increase, 2000-16
Analytical Approach
• We used the GTAP model developed and housed at Purdue for this analysis
• It is a global computable general equilibrium model covering 140 countries/regions and 57 commodities
• For this analysis, we aggregated to 6 regions: US, EU, Brazil, China, South America, Rest of World
Data
• The latest public version of the GTAP data base is 2011.
• Lots has happened in the agricultural commodity production/trade world since then, so we updated the data base to 2016.
• We updated all important variables including GDP, population, capital formation, crop area and production, and trade
Shares of export in US production and shares of China in US export for targeted
crops (figures are in quantity %)
Commodities Share of export in US
production Share of China in
US export Wheat 45.6 3.8 Sorghum 50.1 78.8 Corn 14.4 0.5 Soybeans 50.6 62.3
Summary of Impacts
Variable
Tariff on soybeans (cases 1 and 2)
Tariff on all targeted
Commodities (Cases 3 and 4)
Change in quantity of China’s soybean imports from US (%)
-69 -69
Change in quantity of total US soybean exports (%) -29 -29 Change in quantity of US soybean production (%) -13 -13 Change in US soybean producer price (%) -4 -4 Change in US economic welfare ($ billion) -2.3 -2.6 Change in China economic welfare ($ billion) -2.4 -2.6 Change in Brazil economic welfare ($ billion) +2.2 +2.2
The tariffs are a lose-lose proposition – both the US and Chinalose about the same amount.Brazil is the winner.These are medium term impacts – not short term.
USMCA/NAFTA Analysis
• USMCA consolidates gains of NAFTA-1.0 with modest improvements in market access
• Nonetheless, farmers are facing strong headwinds as U.S. trading partners react to rising U.S. tariffs
• Dissolution of NAFTA could be costly for U.S. agricultural interests
Canada and Mexico have doubled their share in U.S. agricultural exports
24.0%
8.6%
6.6%
5.6%4.7%4.1%
36.8%
Top 10 importers (1995)JapanCanadaKoreaMexicoChinaTaiwanNetherlandsHong KongEgyptGermanyROWSource: GTAP 9 bilateral merchadise trade data
17.1%
13.7%
12.7%
8.5%4.9%
32.1%
Top 10 importers (2017) CanadaChinaMexicoJapanKoreaHong KongTaiwanNetherlandsIndonesiaPhilippinesROW
Source: UN COMTRADE
Mexican exports have gained market share, but Canada less so
17.9%
11.7%
5.9%
4.1%3.6%
3.4%
41.6%
Top 10 sources (1995) CanadaMexicoThailandIndonesiaFranceColombiaBrazilItalyNetherlandsEcuadorROW
Source: GTAP 9 bilateral merchadise trade data
18.1%
16.7%
4.9%3.8%
3.5%3.4%
38.3%
Top 10 sources (2017)Mexico
Canada
China
France
Chile
Italy
IndiaSource: UN COMTRADE
What’s in the agreement?• Consolidates NAFTA 1.0• Main market access changes
• Auto content for duty free access is raised to 75% from the existing 62.5%• 45% of the auto content must be produced in factories where workers are
paid at least $16/hour• Expanded import quotas in Canada for dairy and poultry products
• A variety of other changes not directly linked to market access, for example:
• Extension of copyright protection from 50 to 70 years• New measures for the digital economy: no duties on music and e-books,
protection for internet companies• Improved transparency in import and export licensing
New market access measures in agriculture, estimated changes in quotas, percent
Source: authors’ estimates based on USTA (2018a; 2018b)
105.59
2.6911.5
0.040
20
40
60
80
100
120
Dairy products Live poultry and pigs, eggs Poultry and pork meat Other food products
Modest increases in U.S. agricultural exports
Dairy p
roduc
ts
Meat p
roduc
ts n.e
.s.
Food p
roduc
ts n.e.
s.
Animal
produ
cts n.
e.s.
Other a
gricu
lture
Other fo
od pr
oduc
ts-1
0
1
2
3
4
5
6
Change in U.S. exports, %
Dairy p
roduc
ts
Meat p
roduc
ts n.e
.s.
Food p
roduc
ts n.e.
s.
Animal
produ
cts n.
e.s.
Other a
gricu
lture
Other fo
od pr
oduc
ts-50
0
50
100
150
200
250
300
Change in U.S. exports, $ million
What Happens if NAFTA is Eliminated
with no Replacement?
•Reversion to most favored nation (MFN) tariff
rates
•Uncertainty about special regimes such as
dairy quotas
•Findings reflect work by Ciuriak et al. 2017
and Walmsley and Minor 2017
Concluding Remarks
• Results are subject to a number of assumptions, though likely to be robust
• Results reflect long-term impacts after adjustment• Results ignore adjustment costs• Results assume standard investment behavior, however:
• A different tariff environment in NAFTA could impact investment and changes to the deep supply chains
• A volatile tariff environment could dampen the appetite for investment
• USMCA consolidates the gains from NAFTA-1.0 and increases market access for some agricultural sectors
• However, recent actions by the U.S. could end up harming farming interests that are targeted by retaliatory actions
• Lower agricultural exports• Job losses and a reduction in land values
In summary: current policies will lead to agricultural export losses, USMCA notwithstanding
454
-1767
-7896-9373
-10000
-8000
-6000
-4000
-2000
0
2000
USMCA USMCA+Ag retaliationby Canada and Mexico
USMCA+full suite ofmeasures and
counter-measures
NAFTA withdrawal
Change in U.S. agricultural export revenues, $ million
And will lead to read income losses
188
-779
-27,772
-19,894
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
USMCA USMCA+Ag retaliationby Canada and
Mexico
USMCA+full suite ofmeasures and
counter-measures
NAFTA withdrawal
Change in U.S. real income, $ million
• USMCA is approved• U.S. and trade partners agree to roll
back trade war• U.S. joins the TPP
It could be better…
28
TPP12 would be beneficial for U.S. exports
Dairy products Meat productsn.e.s.
Food productsn.e.s.
Animal productsn.e.s.
Oil seeds Other agriculture Other foodproducts
-5
0
5
10
15
20
25
%
U.S. exports change, %
An agricultural export gain of nearly $5bn
Dairy products Meat productsn.e.s.
Food productsn.e.s.
Animal productsn.e.s.
Oil seeds Other agriculture Other foodproducts
-400
-200
0
200
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600
800
1000
1200
1400
mn
USD
U.S. exports change, mn USD
In summary: current policies will lead to agricultural export losses, USMCA notwithstanding
-25
-20
-15
-10
-5
0
5
10
Worst Current Intermediate Best
Impact on U.S. agricultural exports, $bn
USMCA TPP11 Trade War TPP12 NAFTA dissolution
Thanks!
Questions and Comments
