Things must get worse before they get better.
That might be the reality of America’s trade battle with Canada, China and Mexico.
That’s because U.S. President Donald Trump will only back down from the ongoing trade war if enough Americans feel the pain caused by retaliatory tariffs, according to an economist at the C.D. Howe Institute.
“I think we’re going to see worsening news over the coming months. That’s almost a necessary development for a pullback,” said Dan Ciuriak, a Canadian economist and fellow in residence at C.D. Howe.
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“If there is no pain, there is not going to be any pressure for a return to the negotiating table.”
American farmers are suffering because of Chinese, Mexican and Canadian tariffs on U.S. agricultural products. This spring and early summer, numerous countries introduced tariffs on U.S. soybeans, pork, sorghum and a list of food to strike back at U.S. tariffs on imported steel and aluminum.
In China’s case, the tariffs were also retaliation for U.S. duties on US$50 billion worth of Chinese goods. China, for instance, now has a 62 percent duty on U.S. pork, shutting American pork out of the massive Chinese market.
In response, in late July the U.S. Department of Agriculture unveiled a $12 billion aid program to help American producers cope with declining exports of soybeans, pork, fruit, nuts and other crops.
“(The) USDA will not stand by while our hard-working agricultural producers bear the brunt of unfriendly tariffs enacted by foreign nations,” said U.S. Agriculture Secretary Sonny Perdue.
The USDA plans to provide payments to producers and implement a food purchase program, where it will buy surplus commodities and distribute food to food banks and nutrition programs throughout the U.S.
The aid package surprised a few trade analysts, but not Ciuriak.
He sees it as part of a process.
“We’re starting to see some squeaky wheels (U.S. farmers) saying (this) is hurting,” said Ciuriak, former deputy chief economist with the federal foreign affairs department.
“We (Canada) hope that by not blinking on this that the internal process within the U.S., at the state level, companies and Congress, will do the math … and realize the low-tariff situation that we had before is the optimum.”
Squeaky wheels within the U.S. could sway Trump and his economic team, but other experts aren’t sure what the $12 billion program means. It shows how much a trade war can cost, yet it may not change the calculus for trade talks.
“I don’t think it will impact the (North American Free Trade Association) negotiations,” said Hugo Perezcano of the Centre for International Governance Innovation.
“It only adds to U.S. subsidies to the agricultural sector.”
Perezcano is worried the new subsidies could stick around because such programs are hard to eliminate once established.
The $12 billion question for Canadian farmers is what does this new subsidy mean for canola and other Canadian commodities?
Likely not much, said Neil Townsend, senior market analyst for Farm Link Marketing Solutions.
“I’m a skeptic. It’s politics.”
