The Changing Trade Landscape in Asian Grain Markets: A U.S. Perspective

Abstract

Wheat markets on the Asian continent represent the most important destinations for U.S. wheat—both by volume and value. In addition, projected increases in population and incomes in Asian countries suggest there are significant growth opportunities for U.S. wheat exporters going forward. As Asian incomes grow, the transition from buying “wheat” to buying “quality wheat” will work in favor of U.S. producers. The key to maintaining current Asian markets, and growing in expanding markets, is developing and maintaining a stable and equitable trade environment. Although the United States is well positioned to compete in such an environment, it does face significant competition from other exporters. According to U.S. Department of Agriculture projections, the U.S. share of the world wheat trade is expected to decline over the next decade. Thus, maintaining current Asian relationships and expanding where growth opportunities exist will be key to the future of U.S. wheat exports. Any bilateral trade frictions between the United States and current or potential wheat customers could erode any competitive advantage the United States has in a more stable trade environment. The key to success, then, is a continued focus on quality and building strong, stable, and favorable relationships with U.S. customers. Trade between the United States and Asia has grown significantly over the last decade, but it has not been without controversy and has not impacted all sectors equally. Total U.S. exports, imports, and the balance of trade for goods between the United States and Asian countries are shown in Figure 1. As shown in the graph, the balance of trade has grown increasingly negative over the last decade from a U.S. perspective. The growing trade deficit has been a major concern of the current U.S. administration and was used to help justify the imposition of tariffs on goods imported into the United States, especially from China, beginning in 2018 (1). Much of the U.S. trade with Asian countries occurs under the umbrella of Asia-Pacific Economic Cooperation (APEC). APEC is a forum organized to facilitate economic trade and investment and regional cooperation among its 21 members. Asian members of APEC include the People’s Republic of China; Hong Kong, China; Indonesia; Japan; the Republic of Korea; Malaysia; the Philippines; Singapore; Chinese Taipei; Thailand; Vietnam; Brunei Darussalam; and Papua New Guinea. Non-Asian member countries include Australia, Canada, Chile, Mexico, New Zealand, Peru, the Russian Federation, and the United States. Together, APEC members account for about 60% of world gross domestic product (GDP), and 47% of all trade (7). All APEC decisions are made by consensus, and commitments among the individual trading partners are voluntary. However, the Office of the U.S. Trade Representative argues that participation in APEC has led to a reduction in tariffs and other trade barriers between members over time and has led to economic growth in the region (7). In 2018 the U.S. trade deficit with all APEC countries was about US$677 billion, an increase of 9.6% from 2017 (7). As suggested by Figure 1, the great majority of this deficit was from trade with Asian partners. (Note, the difference between the trade deficit reported with APEC countries and the trade deficit with Asian countries illustrated in Figure 1 does not fully account for the U.S. trade deficit with non-Asian APEC countries. The trade deficit with APEC Asian countries shown in Figure 1 is slightly overstated because it includes non-APEC Asian countries like India, for example.) However, the United States did run trade surpluses with three of the four non-Asian APEC countries in 2018. Since APEC is a loosely formed consortium and decisions and commitments are not binding on individual trading partners, several member countries have entered into more substantive trade agreements with each other. For example, the United States entered into the original North American Free Trade Agreement (NAFTA) with Canada and Mexico, which was replaced by the more recent United States-Mexico-Canada Agreement (USMCA). The United States also has a separate agreement with specific APEC members, including the Republic of Korea, Australia, Chile, Peru, and Singapore; and in January 2020 signed an agreement with Japan. During the Obama Administration, there was a concerted effort to strategically focus on liberalizing trade between the United States and Asia (7). This effort was crystalized in the signing of the Trans-Pacific Partnership (TPP) by 12 countries. (The original 12 TPP signatories included Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, The Changing Trade Landscape in Asian Grain Markets: A U.S. Perspective T. Randall Fortenbery1 School of Economic Sciences, Washington State University, Pullman, WA, U.S.A. 1 Professor and Thomas B. Mick Endowed Chair, School of Economic Sciences, Washington State University, P.O. Box 646210, Pullman, WA 99164-6210, U.S.A. Tel: +1.509.335.7637; E-mail: r.fortenbery@wsu.edu https://doi.org/10.1094/CFW-65-5-0050 © 2020 Cereals & Grains Association CEREAL FOODS WORLD, SEPTEMBER-OCTOBER 2020, VOL. 65, NO. 5 / DOI: https://doi.org/10.1094/CFW-65-5-0050 Fig. 1. Balance of goods trade between the United States and Asia— nominal dollars. (Source: U.S. Census Bureau) Singapore, Vietnam, and the United States.) All 12 TPP signatories were members of APEC, and together accounted for about 40% of global GDP (or 2/3 of APEC GDP) at the time of the signing. The only non-Asian APEC country not included in TPP was the Russian Federation. Several Asian countries were also excluded, including China and Indonesia. To go into effect, the TPP agreement had to be ratified by the legislative bodies of all 12 signatories within 2 years of the initial signing. In the United States, this was put off until after the 2016 election, and it soon became clear that the agreement was not likely to be ratified by the United States since both major presidential candidates campaigned against ratification. Once sworn in, President Trump quickly directed the Office of the U.S. Trade Representative to issue a letter to the other 11 signatories withdrawing from TPP. Most U.S. agricultural sectors favored TPP because it was expected to improve access to Asian markets and put U.S. exporters of agricultural products on even ground with export competitors from Australia and Canada (6,10). Further, there was concern that if the United States left TPP the other 11 signatories might move forward on a separate agreement, and the United States would be placed in a noncompetitive position for exporting agricultural products to Asian markets. In fact, the other 11 countries did continue negotiations, and in March 2018 signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (2). U.S. Agriculture and Asian Trade The general U.S. trade balance with Asia, particularly China, at least partially led to the imposition of import tariffs against most U.S. trade partners and attempts to “rebalance” trade from the U.S. perspective. However, trade in agricultural products was already a bright spot in the overall U.S. trade picture, and as a result, retaliatory tariffs from trading partners were largely focused on U.S. agricultural exports. Combined with the United States’ rejection of TPP, there was significant concern regarding future trade prospects for U.S. agriculture, particularly with Asia in 2018 and 2019. For the last several decades leading up to the 2018 trade frictions, Asian markets had been viewed as a significant growth opportunity for U.S. agriculture. The generally increasing volume of major field crop exports to Asia over the last decade is shown in Figure 2. The expected export growth potential was based on two things: 1) Asian population growth; and 2) per capita income growth in many Asian countries. Asian and total world populations and relative growth rates since 1990 are shown in Figure 3. Over the last three decades, the total population in Asia has remained between 50 and 61% of the total world population (18). The population growth rate on the African continent has been more than double the Asian growth rate since 1990, but it applies to a much smaller total population. Between 1990 and 2020, the human population on the African continent increased from about 12% of the total world population to just over 17% (18). Thus, while Africa is also viewed as a growth market for U.S. agricultural exports, it does not represent nearly the market opportunities afforded by the population on the Asian continent. Further, incomes in most African countries have not grown at nearly the rate exhibited by most Asian countries (Fig. 4; per capita gross domestic product is shown illustrated as a proxy for per capita income) (17). Higher incomes not only result in increased demand for commodities, but, in the case of food, allows for purchases of higher valued products. The importance of Asian countries as trade partners for U.S. agriculture is illustrated in Figure 5. The graph shows the Asian trade share of all U.S. exports for the three largest U.S. field crops—soybeans, corn, and wheat). More than 80% of U.S. soyFig. 2. Select U.S. agricultural exports to Asia. (Source: U.S. Department of Agriculture, Foreign Agricultural Service) CEREAL FOODS WORLD, SEPTEMBER-OCTOBER 2020, VOL. 65, NO. 5 / DOI: https://doi.org/10.1094/CFW-65-5-0050 Fig. 3. World versus Asian population dynamics. (Source: World Popula-