Economic Growth Takes a Hit as Farmers Prepare for Planting Season
As farmers are ready to roll in their fields this spring, the global economy is making not-so-great headlines, starting with coronavirus’ negative ripple effects on international trade.
To date, global economic growth has taken a hit. Global GDP grew just 2.9 percent in 2019, the first time it’s been below 3 percent since the 2009 recession. Plus, emerging and developing economies are pumping the brakes harder than other countries following several years of good growth, and their collective global purchasing power may drop $1.1 trillion as a result.
That being said, here are the top five trade factors currently affecting U.S. markets:
No surprise here—fear and uncertainty surrounding COVID-19 is spreading with the disease. Since the virus has emerged, private forecasters have downgraded China’s economic growth and don’t see any recovery until later in the year.
On the flip side, some economists believe that as disease concerns stabilize in China, the Chinese government will need to shift spending from fighting the disease to buying food. If not, trade with the U.S. could take a back seat as China starts cutting from its 2020 shopping list. (See #2).
2. China Phase 1
The U.S. is counting on China and other trade deals to counteract some of the economic damage caused by coronavirus. The China Phase 1 agreement requires China to buy $200 billion a year, including an average of $40 billion per year in U.S. ag products.
China started to lower tariffs on some commodities and reopened its market to U.S. poultry before COVID-19 took hold. But what comes next is still undetermined—not only for the U.S., but the entire international trade system.
The U.S.-Mexico-Canada Agreement (USMCA) was signed into law earlier this year. American Farm Bureau expects the USMCA to up U.S. ag exports by $2 billion with an increase of $65 billion in GDP. While not in effect yet, farmers may benefit from its stronger integration and science-based trading rules. For example, Canada will now treat wheat imports like domestic wheat for grading, and Mexico has agreed all grading standards will be non-discriminatory.
4. U.S.-Japan Trade Agreement
The U.S.-Japan bilateral trade agreement that went into effect in January gradually reduces or eliminates tariffs and establishes new quotas on $7.2 billion of agricultural products. Nearly 90 percent of U.S. food and ag exports to Japan are now duty-free or have preferential tariff access.
U.S. beef and pork exports can flow into Japan the same as meat coming from the EU, New Zealand, Australia, and Canada. This is all good news for U.S. sales. The details of the pact essentially restore market access that U.S. agriculture was expecting from a Trans-Pacific Partnership.
5. Other Trade Factors
Weaker global economic conditions and demand uncertainty associated with COVID-19 will likely continue over the next quarter and end up pressuring the U.S. corn and soybean prices. Looking out further in the year and into 2021, addressing more trade barriers like these will be critical to building future U.S. trade.
Analysts are already eyeing India’s potential. USDA says better access to its $2.7 trillion economy, 1.4 billion consumers, and growing middle class could rev up U.S. ag exports.
What could be the next opposition of the U.S. markets? Only time will tell.