U.S. Trade Representative announced this morning the United States and China have reached an "historic and enforceable agreement on a Phase One" trade deal. According to the USTR, China has committed to make "substantial additional" purchases of U.S. goods and services in the coming years. In return, the United States will modify its Section 301 tariff actions in a "significant way."
A USTR press release gave no details of the agreement, however media reports indicate the United States would not impose a new 15% tariff on $156 billion of Chinese goods that were scheduled to go into effect on Sunday.
Also, the United States would reduce the level of tariffs the United States imposed on approximately $120 billion of Chinese goods earlier. In exchange, China would buy $200 billion worth of U.S. goods and services over the next two years. President Trump has been insistent that the level for agriculture be $40 billion to 50 billion.
USMCA headed for Congressional vote
The Trump administration and House Democrats reached an agreement on the U.S.-Mexico-Canada Agreement concerning labor enforcement, environment and prescription drugs. This paves the way for Congress to vote on the agreement which will replace the North American Free Trade Agreement.
The agreement maintains zero tariffs for all food and agricultural products that had zero tariffs under NAFTA. The USMCA will expand market opportunities in Canada for products that did not have zero tariffs under NAFTA, including dairy, poultry and eggs. The United States in exchange will provide new opportunities for some Canadian dairy, peanut and limited amount of sugar and sugar-containing products. The agreement also addresses agricultural biotechnology, geographical indicators, sanitary and phytosanitary issues and wheat grading.
The USMCA provides rules for the movement of products among the three countries. It requires that a higher percentage of automobiles be produced with parts manufactured in North America. Currently under NAFTA, automobile manufacturers qualify for zero tariffs if 62.5% of their vehicles' components are manufactured in the three countries. The percentage increases to 75% under the USMCA.
Since NAFTA went into effect on Jan. 1, 1994, Canada and Mexico have become the United States' top agricultural export markets ranking first and second. The two countries accounted for $40 billion in agricultural exports in 2018, or 29% of all U.S. farm and food exports, according to USDA.
Canada and Mexico are critical markets for the U.S. meat industry accounting for $5.5 billion annually in exports, according to the North American Meat Institute. The National Pork Producers Council reports that 40% of U.S. pork exports go to the two countries. The National Cattlemen's Beef Association estimates that 30% of U.S. beef is exported to Canada and Mexico.
Since NAFTA went into effect, pork exports to Canada and Mexico have increased from $322 million to $2.3 billion, and beef exports have risen from $656 million to $1.7 billion in 2017.
The House of Representatives will vote on the agreement next week and the Senate plans to vote on it next year. In addition, the Canadian Parliament will need to approve the agreement and the Mexican Senate will have to approve the revised agreement.
I expect we will see a large House vote in favor of the USMCA with agriculture, business and the AFL-CIO all supporting the agreement.
Farm labor bill passes House
The House of Representatives passed bipartisan legislation to address the issue of labor shortage for U.S. agriculture. The "Farm Workforce Modernization Act" makes reforms to the H-2A agricultural guest worker program and creates a merit-based visa program designed for agriculture.
The bill establishes a program for agricultural workers to earn legal status through continued agricultural employment; reforms the H-2A program to provide more flexibility for employers and provides the program for industries with year-round labor needs; and establishes a mandatory E-Verify program for agricultural employment.
The bill was endorsed by over 300 agricultural organizations. Opponents argued the bill provides amnesty to illegal workers.
CRP signup started this week
This week started the general signup for the Conservation Reserve Program. USDA estimates there are 7 million acres eligible to enroll in the program. This includes the additional acres allowed under the 2018 farm bill and the approximate 5.2 million acres expiring.
There are currently 22 million acres enrolled in CRP and the farm bill increases the number of CRP acres to 24.5 million acres in fiscal year '20 and 25 million acres in fiscal year '21. The farm bill capped rental rates to 85% of the local cropland rental rates for the general signup and 90% of the rental rates for acreage enrolled under the continuous signup.
The general signup ends Feb. 28.