Uncertainty and protectionism are the arch-enemies of prosperity, so it is no surprise that in these uncertain times, with long-standing trade alliances strained and, in some cases, severed, much of the global agricultural economy is faltering.
The International Monetary Fund in April cut its global growth outlook for the third time in six months, to the weakest pace since the global financial crisis in 2009, pointing to trade tensions throughout the world as the impetus for its downgrade.
While it is wise for trade partners to periodically examine and renegotiate trade deals, a protracted trade war, such as the one taking place between the United States and China, is in no one’s best interest. There are few, if any, winners, in this standoff, which is nearly a year old now. Perhaps no group has lost more in this conflict than U.S. agriculture.
U.S. farm incomes already were declining prior to the trade war because of an extended period of low commodity prices. Having tariffs slapped on their products by their largest customer, China, effectively halting imports, only adds to the misery. Producers aren’t the only ones feeling the financial pinch. A look at recent earnings reports from large multinational agribusiness companies reveals reduced revenue in their grain divisions.
But while the China-U.S. dispute receives the most media attention, several other longtime trade agreements and alliances are fraying under the weight of the recent global wave of nationalism/protectionism. The Brexit debate continues as Britain tries to ascertain the best way to (or whether it even wants to) execute its divorce from the E.U. The impact of this 2018 decision by British voters on the grain and milling industries in England, Ireland and throughout Europe is, to say the least, unsettling.
The latest anti-trade salvo involves China halting canola imports from Canada, ostensibly due to grain inspection issues, although most observers say the dispute is rooted in politics. Even the newly renegotiated NAFTA agreement between the United States, Mexico and Canada, now called USMCA, is stalled in the U.S. Congress, with some speculating that it may not be ratified before the 2020 U.S. presidential election.
Perhaps some industries can survive and even thrive in a protectionist environment where tariffs and embargoes rule the day. Agriculture is certainly not one of them. In a world where natural resources and commodities aren’t distributed evenly among nations, free trade is a necessity, not a luxury. In places like the Middle East, where the climate is suboptimal for grain production, people are dependent on grain from foreign lands. Countries like Japan, which have a huge population and little arable land, count on wheat and other grain products coming from the U.S., Canada and other countries. Conversely, farmers in countries like the U.S., Canada, Brazil and Russia, who produce more grain than their own populations can consume, depend on grain-deficit countries to buy their products.
How much longer will these misguided trade conflicts last and what toll will it take on the global grain industry? The answers are unclear, but we must hope that wisdom will triumph over ego and pride and the nations involved in these disputes will find common ground, sooner rather than later.