Tim McCready

Donald Trump says his Administration is “pro-agriculture,” but the rising protectionist sentiment in the United States brings with it a significant amount of uncertainty. This is particularly true for agribusiness – an industry highly dependent on global trade and one which has benefited in the past from freer trade.

Two-way trade between our two countries reached $16.1 billion in 2016, making the United States New Zealand’s third-largest individual trading partner. The US is a major market for agricultural products, and is our largest market for beef and edible offal – worth over $1 billion.

However, with the possibility of border taxes in play, a US-backed Trans-Pacific Partnership (TPP) off the table, and ongoing North American Free Trade Agreement (Nafta) negotiations, the future potential of New Zealand’s trade with the United States is uncertain.

Charles Finny, former official and trade negotiator agrees. “At this stage US policy beyond withdrawal from TPP and a strong preference for bilateral agreements is still unclear, and following the recent visit of Todd McClay to Washington DC a bilateral FTA seems a possibility,” he says.

“But would that be as good a deal as was proposed for TPP? It is too early to tell whether the Trump era trade policy will be good or bad for New Zealand.”

TPP: a leadership vacuum and new opportunities

One thing that was evident throughout the Trump campaign was that America would pull out of TPP. Trump frequently criticised the deal labelling it as “horrible,” a “bad deal,” and a “death blow for American workers.”

While a TPP that includes the US is at this stage off the cards, eleven Asia-Pacific nations – including New Zealand – remain dedicated to ensuring the regional free trade deal goes ahead. The absence of the US has created a vacuum in global trade leadership which China has been more than happy to fill by supporting the Asean-led 16-nation Regional Comprehensive Economic Partnership (RCEP).

For American agriculture, the TPP represented an opportunity for agricultural exporters to trade with what is now a very lucrative Asian economy. The American Farm Bureau Federation estimates that the deal would have boosted annual net farm income by US$4.4 billion.

There is concern in the US that other economies are in a prime position to take advantage of America’s lost opportunity. While in some cases the US is paying significant tariffs in Asia, New Zealand, for instance, is working towards the elimination of tariffs on 99 per cent of exports to key Asean markets by 2020.

The US Meat Export Federation believes its members will see a reduced market share in Japan – their largest export market if the US fails to strike some kind of Pacific trade deal soon. “What we’re worried about is 18 to 24 months from now when [Australia] can offer competitive prices and volumes on cuts that we now are supplying, but at duty rates that are double-digit lower, that really represents a handicap [to US exports],” says the Federation’s Senior Vice President for the Asia-Pacific, Joel Haggard.

The longer this disparity goes on, the bigger the disadvantage could be to the United States, and the greater the advantage to its competitors – including New Zealand.

Recognising this, Darci Vetter – who served as America’s chief agricultural trade negotiator under President Obama said:
“You want to have the best level of access at the time they start forming relationships with buyers and so the timing on this is critical and we’re going to be way behind New Zealand,” he says.

Tim Groser, New Zealand’s ambassador to the US and a former NZ trade minister who worked relentlessly to get the TPP across the line agrees.

“This is a competitive game and of course we aren’t going to sit in a hole and do nothing on these non-TPP fronts because everyone is in this game and if you fall behind you are in a competitive disadvantage.

“At the end of the day we’re all economic nationalists. Our responsibility is to look after our own country’s economic interests.”

Border taxes: sparking a trade war?

Also in play is a border tax on imports into the United States.

In a bid to support Trump’s commitment to increase American competitiveness and prevent jobs moving overseas, some congressional Republicans have put forward a proposal to apply a border adjustment tax (BAT).

The border adjustment tax is considered by some to be a critical part of tax reform, as it will mean that companies can no longer deduct the cost of imports, creating strong incentives to bring supply chains and research back to the United States.

While the introduction of a BAT would impact all sectors, agriculture is expected to be one of the hardest hit due to the amount of materials and inputs farmers rely on that come from outside the US – including fertiliser, fuel and chemicals. Moves to retain the entire value chain within the US could also spark a trade war, with countries like China and Mexico moving away from the US and instead buying their agricultural commodities from other countries.

The levy has divided Congressional Republicans. It is said that Trump is also against its introduction. And there is a question of the legality of the proposed BAT, with critics arguing it would violate United States commitments under World Trade Organisation rules which the US has signed up to.

“Any border tax adjustment runs the risk of breaching commitments made by the US in the WTO or regional/bilateral agreements,” explains Charles Finny.

“Without a detailed proposal it is impossible to comment on the trade law implications of such a policy. But if it appears to be in breach of commitments then the US should expect a challenge from a number of trade partners.

“How the Trump Administration reacts to any challenges will be interesting to observe.”

NZ-US FTA: No major impediments

Trump’s “America First” strategy has had an impact on the US involvement in regional and multilateral trade agreements. But Trump has stressed that he is not opposed to all trade agreements, and is in favour of individual deals on the proviso they can be quickly terminated “if somebody misbehaves.”

Early in his presidency, Trump told Fox News “believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one. There won’t be a whole big mash pot.”

Last month, New Zealand Trade Minister Todd McClay visited Washington for talks with Trump’s Administration.

“I’ve welcomed their interest in an FTA as a demonstration of the good shape our trading relationship is in,” McClay later said.

He saw no major impediments to a trade deal with the US.

Whether Trump sees things the same way is anyone’s guess.