COLUMBUS (WCMH) – Two major trade deals made significant news this week — the U.S. Mexico Canada (USMCA) was finally ratified by the Senate and President Donald Trump signed phase one of a trade agreement with China.
By and large, it is accepted that these agreements did good things for some people. But what did they do for you?
The “Phase One” agreement with China left billions of dollars of tariffs in place for consumers to pay for.
You likely don’t even know you’re paying tariffs on something you buy because the cost is built into the price. Still, thousands upon thousands of products have something in them that triggers a tariff as it came from China — clothes, electronics, aluminum, home remodeling supplies and much more.
In the meantime, the U.S. has initiated steps to address intellectual property rights and China’s manipulation of currency, both of which are serious problems and widely accepted as very positive things the trade agreement addresses.
There is also the opening of some agriculture markets with poultry, specifically chicken, being allowed to be imported into China once more — something China agreed to a few months ago ahead of the signing of the deal.
Dairy products and rice are also big winners with this deal.
Agriculture as a whole could see an increase of $32 billion over two years ($12.5 billion in the first year and $19.5 billion in the second) beyond 2017 benchmarks, which were around $26 billion annually.
That could mean an increase of $80 billion in agriculture imports to China over the next two years — something Ohio’s soybean farmers will be glad to hear as China is Ohio’s third-largest exporting partner and soybeans are a major part of that. Meat and dairy markets will also benefit.
Since the trade war began, China has only been purchasing $7 billion in agriculture from the U.S. and has supplemented the rest with wheat from Russia and soybeans from Brazil. With deals in place to satisfy China’s needs, local farmers will have to fight to get back into a market that took them 40 years to establish, according to local soybean farmer Ryan Rhoades.
While Rhoades is hopeful things will work out, the damage has been done. Now farmers will have to pick up the pieces and start over again.
“I think most farmers, including myself, are concerned about just going another day and keeping the ball rolling, so any increase we have in trade or exports is a win,” Rhoades said.
He added, “Anything better than what we currently were experiencing and having is a win. How big of a victory? Time will tell.”
With 1.3 billion people living in China, a $30 billion investment over two years starts to pale. The investment could be paid by having every person in China spend roughly $23.07 once over the next two years.
Agriculture isn’t the only thing the Chinese government has agreed to import — automobiles are another. They are part of the manufactured goods category and China agreed to bring in an additional $77.7 billion in imports over the next two years.
This is also where the two trade agreements — the one with China and the USMCA — intersect.
The USMCA does a number of things for agriculture but a big one is opening up markets in Canada for dairy. It also addresses two big items with the manufacturing of vehicles.
First, it increases the percentage of a vehicle’s part that must be made in North America from 62.5% to 75%. If a vehicle doesn’t have the required number of parts from North America, it gets hit with a 2.5% import tariff.
The other thing it does is require the parts are made by employees making at least $16 per hour.
All of that sounds good on the surface — more parts of the car made in North America provokes a sense of local pride and anyone would want to be paid at least $16 an hour, a living wage, according to Ohio Senate President Larry Obhof.
“When you look at the provisions that you are talking about, they are going to raise wages in Mexico and, frankly, I think that that’s important because a significant portion of the workers in Mexico are paid a living wage,” Obhof said. “That will also take away some of the incentive that we see for companies to move jobs to Mexico or to other countries, and they will instead produce here as well. So it’s good for labor in Mexico, in the sense that it raises the standard of living for the people who are working there, but it’s also good for labor in Ohio and across the United States because it will create and maintain more manufacturing-specific positions back here at home.”
He said the USMCA is expected to create 76,000 domestic auto jobs.
Tim O’Hara, the president of UAW Local 1112, disagrees with the job creation and retention aspect.
O’Hara worked for General Motors for 41 years before retiring. He, like other former employees in the automotive industry, look at the USMCA as nothing more than a name change from NAFTA.
“If you look at it from the company’s standpoint, there really is no incentive,” O’Hara said.
It boils down to money.
First, the company will look at how much it will cost to make all of the 35,000 parts that go into a vehicle. Will it be cheaper to make and ship a part in Mexico versus in Oklahoma versus overseas in Germany, Japan or South Korea? The company is almost always going to go with the cheapest option to keep costs down so its profit margin isn’t infringed upon.
The USMCA is more likely going to make it more expensive to manufacture cars.
The added cost of labor in Mexico will add up but is still not likely to surpass the cost of having union workers in America do the job even if they are making the same rate.
Some estimate car costs could jump $400 or more because of the USMCA and that will likely get passed on to the consumer because car companies are in business to make a profit, not eat cost increases.
“[Automakers] are going to use these trade agreements to their benefit, not really to the benefit of the workers,” O’Hara said. “If you look at it from the company’s standpoint, there really is no incentive. I expect General Motors to send more jobs to Mexico. I don’t think Lordstown is the last plant that they’re going to shut down.”
So how does the USMCA help here in Ohio? It may not, unless you’re a farmer and even then, the jury is still out on how much or when.
Neither the USMCA nor the China deal is going to change things overnight.
The USMCA will force automakers to reevaluate every part used in their vehicles. They will have to determine if they can get it made cheaper somewhere else, seek bids for that work, etc.
Right now, customized parts are already in production around the world that are going to be going into cars for the next three years.
Just the process of changing where the parts are made, who is making them and for how much could take anywhere between nine months to a year, according to a former industry expert.
Take what happened in Lordstown, for example. O’Hara estimates GM decided they were going to shut the Lordstown plant down three to four years ago and then systematically went about doing so.
These things take time to get rolling and to come to a stop.
In the meantime, consumers pay the bills, businesses make the profits and politicians praise the deals they make.
While it is great that two or three governments can come together to make a deal about importing and exporting, the actual transactions will have to be between businesses in those countries.
What if Chinese businesses don’t import all that agriculture because their market needs are already being met and the price just isn’t good enough? No one is talking about that and it’s something farmers are hoping to never find out.