AFTER the fanfare from the US president over that country’s successful pre-Easter revised trade agreement with South Korea, trade watchers were expecting Japan to be drawn to the negotiating table for bilateral trade talks after being softened-up by the US steel and aluminium tariffs.
But so far that strategy does not seem to be working for the US.
Back in November last year, Japan’s finance minister Taro Aso said that Japan would not enter a bilateral free trade agreement with the US to resolve the two countries’ trade imbalance.
The comment came the day after President Trump bemoaned the trade imbalance during his visit to Japan. Tokyo appears to have remained resolute and their push back on this issue perhaps explains why we are now seeing talk of the US revisiting the Trans Pacific Partnership (TPP).
Ever since President Trump withdrew from TPP immediately on gaining office, US meat processors and producers have been exerting as much pressure as they could to see something done to address tariff disadvantage the US would suffer (particularly in beef) by not being party to TPP.
The president promised bilateral trade deals or revisions of existing deals to achieve some redress.
Now with the added imperative of the trade tit-for-tat with China escalating, it seems TPP is back on the agenda following a meeting last Thursday with Republican senators and governors from the Midwest to hear their concerns on the recent trade developments.
According to meat-industry source Meatingplace, President Trump supposedly directed US Trade Representative Robert Lighthizer and director of National Economic Council Larry Kudlow to look to see whether a better deal could be negotiated.
Representatives of the 11 member countries who signed the deal in Chile in March including Australia’s trade minister Steven Ciobo said they welcome President Trump’s interest but downplayed any likelihood of reopening the negotiations.
No doubt there are benefits to be gained by having the US as a party to the deal but to backtrack now knowing America wants to get a better deal than what is already in place would seem anathema to the long and tortuous process of collective commitment that has gotten the deal over the line for the member countries.
On Thursday night last week President Trump tweeted “Would only join TPP if the deal were substantially better than the deal offered to President Obama. We already have bilateral deals with six of the 11 nations in TPP and are working to make a deal with the biggest of those nations, Japan, who has hit us hard on trade for years!”
All eyes therefore will be on Japan’s Prime Minister Shinzo Abe this week when he visits President Trump at his Mar-a-Lago resort in Palm Beach, Florida.
If Prime Minister Abe continues to resist a bilateral trade deal thus leaving TPP as the only option, it would seem there are two possible outcomes for the US; accept the existing deal or give significant extra concessions for a renegotiation.
As the latter would seem an unlikely choice, perhaps the 11 current members could find something within existing TPP framework that represents a marginal ‘win’ for Mr Trump without triggering full process of engagement and negotiation.
That way President Trump could announce joining TPP as a ‘great deal’ much the same as he did with the revised KORUS (Korea-US Free Trade Agreement) where the concessions won in that process were regarded as marginally better than meaningless (see this column April 5).
Against a backdrop of a possible trade war with China, it is imperative that the US positions itself somehow as an economic counterweight to China in the Asia-Pacific region.
Without bilateral trade deals or TPP, the US would be more easily played off by China against its allies in the event of trade war.
By having better access to SE Asian markets (other than China) it would help to appease the American agricultural sector (meat, soybeans etc) hurt by Chinese tariffs.
But from the US perspective there is a worrying downside to TPP.
The concern is that TPP will become a zero-tariff backdoor for Chinese goods into the American market.
Component parts manufactured in China then shipped to a TPP member country for assembly could find their way to the US tariff free. The clothing industry in Vietnam (a TPP member country) is one example.
There are numerous clothing manufacturers in Vietnam who export finished goods but are almost totally reliant on China for woven fabric and other inputs.
Whether this concern is sufficient to cause the US to remain out of TPP (unless it can renegotiate) or whether it decides to accept status quo remains to be seen.
From Australia’s perspective, the longer the US remains out of TPP the longer the relative tariff advantage to Australia in the Japanese beef market.
Herd liquidation in south
TYPICALLY in January/February the big weaner sales take place in southern New South Wales and northern Victoria and once that is out of the way a few cows are usually culled from herds. This year however with the continuing dry weather, that cull is starting to look more like liquidation.
Twelve months ago at Wagga there were 1457 cows offered in the sales of the second and third weeks of April. In the same two weeks this year that number has jumped to 3536 head, an increase of 143pc.
With Dinmore recommencing Monday shift this week the appetite for slaughter stock in southern Queensland stepped up a notch so numbers in the south are helping.
Southern Queensland is also seeing a steady increase in flow and this in combination with the availability of NSW stock and a rising dollar was enough to pull rates back by 10 cents last week.
Four-tooth ox is now back to 495 and heavy cow 435c/kg. Continuation of heavy sale numbers in NSW will likely see the next adjustment in the same direction.