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U.S. trade policies could impact Canadian ag

U.S. trade policies could impact Canadian ag

Over 1,100 economists signed a letter to warn the President of policy impacts

By Kaitlynn Anderson
Staff Writer
Farms.com

History could repeat itself and Canadian farmers could feel the effects.

Thursday, 1,140 economists signed and submitted a letter to the U.S. President and Congress to warn them of the impacts of protectionist trade policies.

The written statement included an excerpt from a similar warning from 1930, when 1,028 economists advised the American government to reconsider enacting its Smoot-Hawley Tariff Act.

“We are convinced that increased protective duties would be a mistake,” the experts stated in the original letter.

The tariffs would cause domestic consumers to face higher prices, the economists stated.

“A higher level of protection would raise the cost of living and injure the great majority of our citizens.”

In addition, the government’s proposed measures would place multiple challenges on American farmers, the original letter stated.

“First, as consumers, they would have to pay … higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.”

The government ignored this warning. In turn, the country further plunged into the Great Depression, many scholars argue.

“A number of countries retaliated against (those tariffs) and we got ourselves into a trade war,” Al Mussell, research lead and founder of Agri-Food Economic Systems Inc., told Farms.com yesterday. “Many economic historians today believe that this (series of events) is what really caused the Great Depression, much more so than the crash of the stock market, per se.”

And the same situation could be relevant today.

“One would worry that we’re already starting to see it happen,” Mussell said.

The American government has proposed tariffs on a variety of goods, including soybeans, pork, steel and aluminum. The President has also stepped out of the Trans-Pacific Partnership trade deal and threatened to end the North American Free Trade Agreement.

In response to America’s actions, China is looking to import soybeans from other countries, including Brazil and Canada, according to a Bloomberg article last Wednesday.

The country is “very deliberately not buying any (soybeans) from the U.S.,” Soren Schroder, chief executive officer of Bunge Ltd., said in the article.

This conflict could impact the world market.

“The U.S. is a very large exporter of soybeans, so if it is no longer able to export to China, then (we could see) a diversion in trade,” Mussell said. “The U.S. will have to find other markets for its products.”

As Canada will still have access to the Chinese market, it could see some benefits if these events occur. 

“Canada may effectively face a stronger demand (for its goods) because Chinese purchasers will want to switch away from U.S. products,” Mussel said. As a result, Canadian farmers could receive a higher net price for some of their commodities.

Eventually, this diversion could lead to a shift in basis prices in Canada, too.

For example, farmers could see “a general strengthening of the pork basis and potentially the hog basis,” he said.

However, as tariffs cause prices to become more volatile, U.S. futures could become “somewhat less valuable as a hedging instrument for Canadian farmers,” Mussell said.

This tool “is still the only hedging instrument that we have in Canada, so it’s going to continue to be used,” he said. “But, that (result) is what the worry would be.”

The more the loss of Chinese demand impacts the U.S. market, the thinner and more volatile those prices could become, he said.

“We don’t know where this is going, but it’s a very high-stakes game.”  

 

 

Alex Belomlinsky / DigitalVision Vectors / Getty Images photo