Globalization Is Surviving Trump
Kevin Kester is used to taking the long view—his family has raised cattle on the land his Bear Valley Ranch occupies in California since 1867. But he also can see what looms in the not-too-distant future across the Pacific Ocean.
The 11-country trade deal once known as the Trans-Pacific Partnership has started to come into force, giving his Australian competitors what stands in coming years to be an increasingly valuable leg up in Japan, the U.S.’s most lucrative export market for beef. Thanks to President Trump’s withdrawal from the TPP—one of his first acts in office—American ranchers won’t get any of the benefits of the reduced tariffs for beef and other farm products U.S. negotiators spent years haggling over with Japan, the pact’s biggest remaining economy.
Kester isn’t just another bemused bystander to American politics. As the current volunteer president of the powerful National Cattlemen’s Beef Association, he serves on committees that advise Trump and his cabinet on agricultural policy and trade. He doesn’t see Trump reversing course and joining what’s now known as the CPTPP (the “C” stands for comprehensive and the “P” for progressive, a rebranding requested by Canada’s Justin Trudeau) anytime soon. His advice to the government: Please hurry up and negotiate with Japan so U.S. beef doesn’t become another economic casualty of the president’s trade wars. “We’re encouraging them to get on the horse and get working on the bilateral with Japan as soon as possible,” he says.
Kester’s plea echoes an emerging theme among U.S. industries going into 2019. While plenty of corporate angst is focused on tariffs and the president’s China battles, many businesses are more concerned about protecting their share of other offshore markets and their international competitiveness. The reason is simple. Trump’s election in 2016, amid the advent of an era of protectionist power politics, threatened to bring about the death of globalization—a subject that will consume this month’s World Economic Forum in Davos, Switzerland. Yet the rest of the world appears to have decided globalization isn’t the enemy after all, and that leaves the U.S. playing trade catch-up.
The CPTPP is just one sign of that. Come Feb. 1 an even vaster deal between the European Union and Japan will take effect that gives carmakers on both sides preferential access to each other’s markets, as well as the same access to European beef for Japan that was included in the TPP. That follows another EU deal with Canada already in place and comes alongside talks Brussels has held with Australia, Mexico, New Zealand, and one of Latin America’s biggest trading blocs, Mercosur, among others.
“My view, and Europe’s view, is that closing up is not the answer,” said Cecilia Malmstrom, the EU’s trade commissioner, in a Jan. 10 speech in Washington in which she laid out Europe’s push for continuing trade liberalization. “Shortly, the vast majority of economic growth will be taking place outside the West,” she said, in a thinly disguised dig at the U.S. “We need to factor that into our strategies.”
It’s not just the EU. Besides the “Belt and Road” infrastructure push, which gets most of the attention, China is pursuing its own trade agreement that includes Southeast Asian economies, India, and U.S. allies Australia, Japan, and South Korea. And Africa’s economies are hammering out a new trade pact that would cover the entire continent.
Trump’s argument is that trading partners have taken advantage of the U.S. for decades, and he says he can get a better deal through smaller, bilateral agreements than regional ones such as the TPP. And he insists that he’s delivering on that promise. “The greatest harvest is yet to come. The future for America’s farmers is bigger, better, bolder, and brighter than ever before,” Trump told the American Farm Bureau’s annual meeting on Jan. 14. As evidence that the approach is working, Trump’s supporters cite a renegotiation of Nafta that still needs congressional approval but includes wage rules that the administration contends will encourage more auto production in the U.S. The president regularly claims he’s winning the trade war with China and that negotiations there, which face a March 1 deadline, are going well. Talks with Japan and the EU are also due to start this year.
Yet there’s plenty of evidence that Trump’s efforts may in some cases only secure benefits U.S. businesses thought they already had in the bag because of prior negotiations. The updated Nafta won few meaningful concessions from Canada and Mexico for U.S. farm exports. Agriculture also remains a target of both countries’ retaliation against Trump’s steel and aluminum tariffs, which remain in place. Talks with China are focused in part on increased purchases of U.S. agriculture and energy exports. Yet their scale and how enduring they will be remains unclear.
With Trump’s threat to impose tariffs on imported cars hanging over the parties, the EU and Japan talks are likely to be difficult. Japan got the U.S. to agree that Tokyo wouldn’t have to give anything on politically sensitive agriculture beyond what was in the TPP as a precondition. The EU, with which the Obama administration launched comprehensive talks in 2013 that Trump set aside, insists it won’t even discuss agriculture.
Kester says many of his fellow ranchers supported the president in 2016 and still do. But they’ve yet to feel the impact of Trump’s trade policies. In the case of beef and Japan, he says, the U.S. industry is being spared for now thanks to a drought that’s reduced Australia’s herd. Ranchers there will need at least two years to ramp up production.
But Kester is still betting on globalization. “Trade going out into the long term is our future profit center,” he says. “If we don’t have a bilateral deal with Japan in three years, we are going to have some problems.”