U.S.-China trade war hurting Canada

Hey there, time traveller!
This article was published 18/05/2019 (2335 days ago), so information in it may no longer be current.

As the posturing and tit-for-tat tariffs between the U.S. and China escalate, it’s becoming apparent that an all-out trade war is brewing — and food will be the weapon.

A group of Canadian agricultural economists tracking the deterioration in the global trade environment is now warning in a research paper that the continued breakdown in rules-based trade could have implications for food security — even for Canada.

Most of the headlines Canadians see about trade with China these days are about that country’s decision to block our farmers’ canola shipments.

The likelihood that curtailed canola shipments will increase ending stocks and put a damper on prices has prompted some farmers to scale back their canola acres in favour of other commodities such as wheat, barley or oats.

It’s not that the price outlooks for those crops are any better; they are a little less expensive to grow.

However, canola prices are also being driven downward by the effects on soybean prices of the U.S. trade war with China.

For longtime grain industry observers, the emerging scenario bears a grim resemblance to the mid-1980s, when the U.S. took on the European Union over agricultural subsidies.

The world’s two largest exporters, both sitting on huge stockpiles of commodities and well-endowed treasuries, battled over market share, driving global prices to punishingly low levels for smaller exporters.

This time, it’s the U.S. versus China. Economists Al Mussell, Douglas Hedley, Ted Bilyea, and former Canadian trade negotiator Mike Gifford say in their latest analysis that Canada, once again, will be caught in the crossfire.

“What is becoming clear is that the situation faced by Canada is like none other in recent memory, with worries of the sudden decline in the rules-based international trading system, coupled with much larger countries duelling with one another in trade wars and the menace of an historic animal disease outbreak,” they write.

African swine fever is decimating the Chinese hog herd and it’s not yet known how far this disease could reach outside of its borders. It is surfacing in other Asian countries and has long been endemic in wild hog herds in some parts of Europe.

Canada’s agri-food policy, and increasingly, its projections for economic growth, are predicated on a fair global trading environment.

But as a welterweight in a global market dominated by heavyweights, exporters like Canada need rules to govern trade and they need the various players to abide by those rules.

Anarchy would better define the current environment and Canadian exports are being slammed directly and indirectly. What’s more — there is no end in sight.

“It is evident that the U.S. decision to deliberately create a trade crisis was taken by the current U.S. administration, but it must be recognized that the underlying U.S. concerns are long-standing and predate the Trump administration,” they write. In fact, some of the frustrations with China date back to when it joined the World Trade Organization in 2001, but only partly moved to a market-based economy.

Now, as a net importer of food, China is vulnerable, particularly if one of its chief sources of protein is decimated by disease. Part of its bid to achieve food self-sufficiency has included buying up agri-food production assets in other parts of the world, such as Central Asia, eastern Europe, Africa and South America.

The recent purchase of controlling interest in Manitoba pork producer and processor HyLife was by a Thai firm, with the bulk of its operations and investments in China, the paper notes.

The strategy, in essence, secures a supply chain to compensate for the fact that China’s domestic production isn’t keeping up with the demand growth. And although it seems beyond imagination, if there are supply shortages caused by weather or disease in the future, Canadians might not have first dibs.

“Under a rules-based international trade regime, domestic food security fears due to foreign ownership of Canadian agri-food assets would be exaggerated; under a power-based trading system, fears of foreign ownership impacting access to food in Canada become much more credible,” the economists warn. “Planning should be undertaken to respond to the full range of possible long-term outcomes.”

Laura Rance is vice-president of Content for Glacier FarmMedia. She can be reached at lrance@farmmedia.com