American Chaos Creates A CPTPP Where Canadian Ag Wins Big

Today we learned that our American friends imposed a 25% tariff on all steel products and a 10% tariff on all aluminum products coming into the United States. Thankfully, and because of national security implications, Canada has been exempted from these tariffs. Canadian trade Minister Chrystia Freeland called this a positive step. Needless to say, you could hear some relief coming from Ottawa as well as many other places across our North American continent.

Of course, some people might call this chaos. It is said that President Trump almost likes to create chaos to force some policy initiatives. Everything and everybody is off guard. That includes everybody in trade negotiations, allies, etc. etc. or, maybe it just seems that way.

Fast forward to last Monday night, your loyal scribe stopped in Toronto on my way to Trenton where I was speaking on the grain markets at the TCO Agromart customer day at the Royal Canadian Air Force Airpark. I had made arrangements earlier to stop in Toronto and meet one of the first Brazilian followers I had on twitter, Rodrigo Zobaran. Rodrigo and I go way, back. I once did a Skype interview with him and his company in Sao Paulo. He managed literally thousands of Brazilian soybean acres at one time. He’s now Vice President of a grain company in the United States.

Our meeting was tremendous. In short, we have quite a history together even though it has been on Twitter. Meeting in person gave us an opportunity to fill in the blanks. Of course, Rodrigo told me a lot about Brazilian agriculture and I had lots of questions. However, it was one thing that he told me about American trade policy, which really hit home, especially with the news events coming from Washington over the last week. He simply told me that he can remember a time when Brazil was not an agricultural powerhouse. However, he recounted a trade embargo launched by the Americans many years ago that helped jumpstart the agricultural production revolution in Brazil. From that day forward Brazil started building agricultural production and of course as we all know it is a major player on the world stage now in terms of agricultural production and trade. It will likely only grow bigger.

It was so interesting to me because Brazil is such a major competitor of the United States when it comes to agriculture. So of course we chatted about TPP and NAFTA and other trade agreements and how this all might be affected from American recalcitrance to engage in these agreements. With the Americans exiting TPP and reopening NAFTA, I had to wonder if they are incubating their own competition for agricultural commodities in the years to come.

Case in point is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), (TPP-11 or son of TPP), which Canada signed today in Santiago Chile. With the Americans out of the agreement it is now an agreement with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. With the Americans out of the agreement, Canada is set to benefit big time because we already have a free-trade arrangement with the United States and within this new agreement we don’t have to compete with them. The economic benefit to us is estimated at $3.4 billion a year.

Japan will be by far the biggest win for Canadian agriculture in this agreement, but Malaysia and Vietnam are part of the price too, all who have high tariff barriers. The phase-in will take over 20 years after all countries ratify the agreement. Canadian pork, beef and canola are set to benefit big time. We gave up about 3% of the supply managed sector to get here. Our American friends are sitting on the sidelines wishing it wasn’t so.

In this environment the NAFTA negotiations continue. These negotiations have been tough, but keep in mind even with the original Canada US free trade agreements between Brian Mulroney and Ronald Reagan it was also tough. Of course, at the top of the American government it seems so chaotic, or a creative chaos, who really knows. It seems like such an artificially created difficult environment to make things happen on the trade front. American farmers, who generally are very pro-trade have been sold down the river on some of this.

Keep in mind over a period of 32 years I’ve never been a big proponent of free trade. I’ve always felt that it forces farmers to the lowest common denominator on price. However, in this current environment where the Americans are not involved with CPTTP, that’s not the case, it definitely gives Canadian farmers a comparative advantage.

This is all taking place in a world, where the President of the United States is testing chaos theory, his own brand of chaos theory. Just let the butterflies flutter. Of course, I’m listening to my Brazilian friend Rodrigo telling me about how similar past trade actions spawned the Brazilian agricultural revolution. It’s interesting. You got to wonder where all the butterflies are going to land.