Trade wars? Let’s talk turkey

Over the past few months, US President Donald J. Trump’s administration has engaged in trade disputes with several of the United States’ trading partners, most notably China, but also traditional allies like the European Union (EU), Canada, and Mexico. EU Commissioner for Trade Cecilia Malmström, who was in Washington last week for discussions with US Trade Representative Robert Lighthizer, was unable to make much headway in transatlantic trade talks. All eyes are now on the G20 summit in Buenos Aires on November 30 and December 1 at which Trump and Chinese President Xi Jinping are expected to try and de-escalate trade tensions between their two countries.

These trade disputes do have a silver lining: your Thanksgiving turkey will be cheaper this year. But before we celebrate this price drop let’s take a closer look at what it tells us about what is going on in the world of trade.

Exports to China down: In July 2018, the Trump administration imposed tariffs on Chinese goods valued at $34 billion. China retaliated with tariffs on US agricultural products, including poultry. According to the US Department of Agriculture, exports of a broad range of chicken, turkey, and egg products decreased by more than half between June and September. The impact on prices has been relatively marginal since US poultry exports to China were low to start with as a consequence of the 2015 Chinese ban on some poultry products due to high pathogenic avian influenza (HPAI).

Turkey feed costs less:  The prices of corn and soybeans, the primary feed blend for turkeys, have dropped considerably since China imposed tariffs on US soybeans, cotton, rice, sorghum, corn, and other major agricultural exports, including products like soybeans uncompetitive compared to those of Brazil and others not affected by increased import duties. Previously, nearly one-third of US soybeans were exported to China annually. Now, large quantities of soybeans have flooded the domestic market, leading to a significant decrease in the price of soybeans within the United States.

Increased competition from Mexican pork: After the United States slapped tariffs on Mexican steel and aluminum in June, Mexico retaliated with targeted countermeasures, including a 20 percent import duty on US pork imports. This resulted in causing US pork farmers losing parts of their second-largest export market as their products are no longer competitively priced. As a result, the domestic supply of pork has gone up while prices have gone down resulting in a competitive alternative to turkey.

Turkey and USMCA

Mexico is the number one export destination—worth more than $1 billion annually—of US broilers, including chicken, turkey, and eggs. As Mexican countermeasures to US steel and aluminum tariffs targeted pork but excluded broilers, US exports of broilers not sold in China could be diverted to Mexico in 2019. This hinges, however, on the adoption of the renegotiated NAFTA, the so-called USMCA.

While the leaders of Mexico, the United States, and Canada are expected to sign the deal on the margins of the G20 summit, it remains unclear if the US Congress will give its consent to implementing the deal. If USMCA were to be blocked by Congress, US President Donald J. Trump would either have to leave the existing NAFTA in place or return to the negotiating table. If he were to go cold turkey on the renegotiated deal altogether—as he has repeatedly threatened to do in the past—Mexico would be allowed to levy a 75 percent tariff on US chicken and turkey according to World Trade Organization rules. This would make US poultry too expensive for the Mexican market and would lead to a flooding of the domestic market, lowering the domestic prices of chicken and turkey even further.

What’s next on the trade war menu?

Ideally, the G20 summit will provide an opportunity for Trump and Xi to follow the pattern of Trump’s meeting with EU Commission President Jean-Claude Juncker in July. At that meeting, Trump and Juncker agreed to start discussing the scope of future trade negotiations while holding off on further tit-for-tat tariff actions as long as negotiations were ongoing.

While China’s retaliatory measures are currently targeted at US agriculture, there are considerable potential gains to be had for US agriculture in a deal with China that would go beyond simply lifting current punitive measures. These are:

Reopening the Chinese market to US poultry: Before all poultry and poultry products from the United States were banned in January 2015 as a result of avian flu, China was a major export market for US poultry. Reopening of Chinese markets for US poultry was a top priority for a US trade delegation to China this summer.

Increasing demand for beef: The US Department of Agriculture expects China’s demand for beef to continue to increase as domestic production stagnates. Current fears of African swine fever spreading in China will increase this demand even further, creating a potentially larger market for US beef exports.

African swine fever spreads in China: African swine fever has affected large parts of Chinese pork production as well as wild boars in Sichuan province. The outbreak comes less than three months ahead of Lunar New Year celebrations in February, peak demand time for pork.

If Trump and Xi are unable to reduce trade tensions, we can expect an escalation in the dispute by the end of the year. US tariffs of 10 percent on $200 billion in Chinese goods, imposed in September, will increase to up to 25 percent. Trump has repeatedly said he would consider levying tariffs on all Chinese imports.

In addition, the Trump administration is considering a global tariff on imports of cars and car parts on the grounds of national security considerations. These could be announced before the end of the year. Any additional US tariffs are likely to spark countermeasures from affected countries.

While there is still hope for a de-escalation of the trade war, domestic factors like a strong dollar, exceptionally high employment rates, and strong support from his electoral base will empower Trump to keep up the pressure on China. Therefore, it is not unlikely that this game of chicken between the United States and China will continue.

In the long run, this will hurt the US and global economies, interrupt global supply chains, and put foreign relations on the chopping block. But at least it will keep the price of your Thanksgiving turkey down.

Marie Kasperek is associate director in the Atlantic Council’s Global Business and Economics Program.

Related Experts: Marie Kasperek

Image: US President Donald J. Trump (right) pardoned a turkey named Peas as National Turkey Federation Chairman Jeff Sveen looked on during the 71st presentation and pardoning of the Thanksgiving turkeys in the White House Rose Garden in Washington on November 20. (Reuters/Leah Millis)