Booming Trade Ahead?

( Lori Hays )

Cattlemen in the U.S. are ecstatic new trade agreements will provide a much needed boost to domestic cattle prices. Signing phase one of the Chinese trade agreement last month created the most frenzy, but an earlier trade pact with Japan is likely to have more immediate impact. 

For several years Japan has been the largest export destination for U.S. beef, peaking at more than $2 billion in 2018. Last year’s total slipped some 5%, but Japan remained the largest consumer of U.S. beef. On Jan. 1, 2020, however, the newly minted U.S.-Japan Trade Agreement went into effect, lowering tariffs on chilled and frozen beef from 38.5% to 26.6%. On April 1, tariffs will drop to 25%.

When the U.S.-Japan Trade Agreement was signed last October, Ethan Lane, National Cattlemen’s Beef Association director of governmental affairs said, “That is a level playing field and competitive access to our largest export market in Japan. This is the product of years of discussions and back and forth, and advocacy and education efforts on behalf of our leadership.”

Reducing the financial hurdle to ship beef to Japan will boost U.S. exports, according to the U.S. Meat Export Federation. 

“The fact that Japanese consumers are going to be shouldering less of the tariff burden should increase consumption,” says Joe Schuele, USMEF spokesman. The trade group forecasts Japan will buy about $2.3 billion in U.S. beef this year, a 14% increase.

USMEF forecasts continued sales increases to Japan over the next five years. That’s because tariff reductions will continue down to 25% next year with annual reductions until it reaches 9% in 2033. By 2025, USMEF believes the Japanese will be buying $2.8 billion worth of U.S. beef, which, if realized, would be a 30% increase over 2019 levels.

Schuele says U.S. beef exports will increase because, “We feel we’ll be able to displace some competitor’s product, and we might also capitalize on increased consumption.” 

While beef industry leaders praise the Japan deal, they are nothing short of ecstatic over the potential in the U.S.-China pact. Since the Chinese market reopened to U.S. beef in mid-2017, only about 20,000 metric tons have been delivered. That’s less than 1% of total U.S. beef exports.

But China represents a relatively untapped market with its massive middle-class population of roughly 550 million people. That’s 40% larger than the total U.S. population, and 10 times the size of Japan’s middle class. 

“The phase-one agreement with China will be a game changer for the U.S. beef industry,” says Jennifer Houston, NCBA president. “It was an especially great day for American beef producers.”

That’s because China agreed to most of U.S. negotiators’ demands, and as a result, the Trump administration anticipates U.S. beef exports to China could soon reach $1 billion per year.

In signing the agreement, Chinese Vice Premier Liu He signaled the Chinese are no longer worried about the threat of bovine spongiform encephalopathy (BSE). China also ended its ban on hormone-treated beef, stopped requiring beef come from cattle younger than 30 months of age, and ended its demands for a cattle traceability system in the U.S.

However, the Chinese held firm on their ban on cattle treated with ractopamine, a beta-agonist given to feedlot cattle. 

While China made concessions on trade, there are still high tariffs that remain in place. Beef and all ag commodities are currently subject to a 47% retaliatory tariff,  higher than the base 12% allowed under World Trade Organization rules.

However, those tariffs will not prevent the export of beef to China, explains Gregg Doud, chief negotiator with the office of U.S. Trade Representative. 

“They made a commitment on meat that they have to meet,” Doud says.