Role of international politics on agri‐food trade: Evidence from US–Canada bilateral relations

A well‐functioning trade relationship between Canada and the United States is crucial to the economic vitality of the Canadian agri‐food industry. However, agri‐food trade is more susceptible than other sectors to political interventions. The Trump presidency has strained Canada–US relations and his trade policy actions have significantly increased trade restrictions and trade policy uncertainty and undermined the rules‐based global trading system. We examine the pattern of agri‐food trade between the two countries and find that the upward trajectory of bilateral agri‐food trade ended in 2013. Although this flatlining predates the Trump administration, we show that Trump increased trade policy uncertainty starting in 2017 and likely impacted further expansion of trade. We examine what might change under the Biden presidency and argue that the new administration is likely to restore strong relationships with allies and work to rebuild important international institutions such as the World Trade Organization (WTO). Although protectionist forces will continue to impact bilateral agri‐food trade, we expect closer political ties between a Biden administration and the Canadian Prime Minister. This should have a positive effect on the Canadian agri‐food industry by reducing trade uncertainties, thereby increasing agri‐food trade between Canada and the United States.     

Agriculture in the United States,Mexico, Canada Agreement: Agreeing to keep things pretty much the same

North American Free Trade Agreement (NAFTA) was referred to by U.S. President Trump as one of the worst trade deals ever made. Given this billing, one might have expected the result of its renegotiation to be a major change to the trading relationship between the United States and Canada. The new United States, Mexico, Canada Agreement (USMCA), however, retains a great deal of its predecessor. This is particularly true for agricultural trade. Canadian market access into the United States remains virtually unchanged. No major domestic regulatory changes were agreed to by Canada. While there were concessions made on market access for U.S. products into Canada's heavily protected sectors where the supply management policy applies, they do not appear to threaten the system. While the value of the compensation has not yet been announced, compensation for losses that will be suffered by farmers producing under supply management is agreed in principle. The USMCA is an agreement to keep things pretty much the same.     

A new president in the White House: implications for Canadian agricultural trade

Canadian agricultural trade has experienced several volatile periods over the past 15 years. The Great Recession (2007–2009), the 2015–2016 global trade slowdown, unilateral policy actions by the United States against key trade allies and the multilateral system more generally, and the impacts of the Covid‐19 pandemic are among the most significant events during this period. Given the close integration of Canadian and US agricultural markets, the recent US election is likely to again impact the relative competitiveness of Canadian agricultural exports. While many observers suggest President‐elect Joe Biden will return to normal times regarding multilateral cooperation with key allies and international institutions such as the World Trade Organization, the new administration is likely to face headwinds given the significant fraying of ties with key trading partners and allies due to disruptive actions taken by his predecessor. This article provides an overview of potential implications of a Biden administration for Canada's agricultural trade. We start by reviewing recent trade shock events affecting Canada's agricultural trade with a particular focus on trade actions taken by the United States. Relevant components of the President‐elect Biden's platform, considerations affecting the implementation of this platform, and the implications of this for Canadian agricultural trade are considered.     

President Biden's international trade agenda: Implications for the Canadian agrifood sector

The 4 years of the Trump administration was marked by a number of events and policies that affected the Canadian agrifood sector. Changes to preferential trade agreements, the collapse of the World Trade Organization's dispute settlement framework, increased domestic support for US farmers, and diplomatic tensions between the United States and China all shaped international trade flows and created an environment of policy uncertainty. The Biden administration will change course on several important trade policy issues. We discuss how these changes could affect the Canadian agrifood sector along a number of dimensions, including a return to multilateralism, (re)engagement in preferential trade agreements, and movements toward a less combative and more predictable trade policy agenda. We expect Canadian agrifood trade flows under the Biden administration to exceed what they would have been under a second Trump administration.     

Does the Exchange Rate Matter to Agricultural Bilateral Trade between Canada and the U.S.?

This study examines the effects of the Canada–U.S. exchange rate on bilateral trade of agricultural goods between the two countries and on U.S. farm income. Special attention is given to agricultural trade between the two countries under the Canada–U.S. Free Trade Agreement (CUSTA). This study utilizes two time series models: the vector error correction model (VECM) and the vector moving average model (VMA) with quarterly time series data from 1983 to 2000. It is found that the exchange rate has a significant impact on U.S. agricultural trade with Canada, but the impact on U.S. agricultural price and income is insignificant. The exchange rate between the two currencies is found to be weakly exogenous in the U.S. agricultural sector, which answers a fundamental question about the role of the exchange rate in Canada–U.S. bilateral trade for agricultural products. In addition, the results point to a significant, though minimal, effect on bilateral trade due to CUSTA.     

An Analysis of Removal of Agricultural Trade Barriers between the United States and Canada with Emphasis on the Southeast

A four-region, 23-commodity small world agricultural trade liberalization model within the SWOPSIM framework is used to measure the impact of tariff removal between the United States and Canada. The tariffs are simply defined as negative import subsidy equivalents in the model and are then removed from the trade prices. The model recalculates domestic supply and demand levels in all regions, rebalancing world trade, production, consumption and prices. In summary, the impacts of the Canada-U.S. Trade Agreement on selected commodity groups are significant. Canadian imports of beef and veal, poultry meat, soybean oil and fresh strawberries increase. Furthermore, the results indicate larger trade flows for selected products and declines in producer and consumer prices in Canada, U.S. and Southeast regions. Since the U.S. share of Canadian agricultural imports averaged 60% in the 1980s, the impact of trade liberalization will be greater in Canada in selected commodities than in the U. S. or the southeastern region, and Canadian dependence on the U.S. market will be increasing in the future. The tariff phaseout, together with a reduction in nontariff barriers and harmonizing of domestic agricultural policies, will create more export opportunities in selected commodities for both the United States and Canada, and will create the world's largest free trade market.     

US farm support under a Biden administration: Plus ça change,plus c'est la même chose?

During the Trump administration, there has been an unprecedented increase in the level of domestic support provided to US agricultural producers. Direct farm supports, including price and income support payments, federal crop insurance, and supplemental assistance to compensate losses due to the trade war with China and the pandemic, have accounted for more than one‐third of net farm income. Those payments have threatened to push the United States over its World Trade Organization (WTO) domestic support obligations and increased its vulnerability to potential dispute settlement challenges in the WTO. The incoming Biden administration will likely bring a new focus to repurpose farm subsidies to provide environmental benefits, such as reduced greenhouse gas emissions, but to achieve those reforms they will need to convince a US Congress that has historically been prone to maintaining the status quo.     

A Spatial Equilibrium Analysis of U.S.–Canadian Disputes on the World Softwood Lumber Market

This paper utilizes a world spatial equilibrium model to examine the effects of U.S.–Canadian softwood lumber disputes on U.S., Canadian, and other exporters' and importers' lumber markets. Results show that the U.S. import tariff on Canadian softwood lumber impacts prices, supply, demand and trade flows not only in the United States and Canada but also in the other countries. Though the goal of U.S. trade restriction is to limit imports from Canada and protect its producers, the United States cannot fully accomplish this goal as non-Canadian exporters fill the void left by the reduced imports from Canada. Canadian producers lose from the U.S. policy, but their loss is mitigated as Canada redirects its exports to other importers. Importing countries such as Japan and the European Union benefit from the U.S. trade restrictions as Canada seeks to sell its softwood lumber to these countries.     

Linking of U.S. monetary policy and exchange rates to world soybean markets

The linkage between macroeconomic policies and agricultural commodity trade has become an important research issue of agricultural economists. This paper investigates the macroeconomic linkage of soybean trade competition between the exporting countries of the United States, Brazil, and Argentina in the EC-12 and Japan import markets. It is argued that U.S. monetary growth may have important impacts on the competitive position of U.S. soybean exports through exchange rates. Two relationships are investigated: (a) the effects of U.S. monetary growth on the agricultural trade weighted exchange rates, and (b) the responsiveness of agricultural commodity prices and U.S. exports to exchange rate movements. Results indicate that a weak dollar increases imports of soybeans and soymeal significantly which serves to increase the equilibrium world price and increase both U.S. and Brazil/Argentina exports in the long run. However, during periods of more expansionary U.S. monetary policy there is little evidence of significant increases in market share position for U.S. soybeans and soymeal in world markets.     

Impact of Environmental Policies in the Hog-Pork Sector on Trade and Market Welfare in North America

The objective of this study is to design a framework to assess trade patterns and market welfare (Marshallian measures of producer and consumer surpluses plus government payments) under various combinations of agricultural, environmental and trade policies. To reach this objective, an environmental model, EPIC, is linked to a model of the North American hog-pork sector. The reduction in Québec inventories, following the implementation of environmental policies, triggers a decrease of Canadian live hog exports to the U.S. and an increase of U.S. pork exports to Canada. Environmental policies are responsible for decreases in welfare. The decrease in welfare is the largest when a moratorium in North America is simulated. Since trade liberalization has a positive impact on welfare, the welfare decrease from a moratorium is somewhat attenuated under free trade conditions.     

Determining Opportunities for U.S. Exports of Consumer-Oriented Foods to African Regional Markets

Abstract

This study examines the level of trade between the U.S. and Africa for consumer-oriented agricultural products during the 1990s. To achieve this objective, we propose six congruent regional African markets and examine patterns of U.S. trade with Africa on consumer-oriented agricultural products. The reason for such groupings is to identify trade flow differences and similarities between the U. S. and each of these regional groups. The results shed light on the extent to which U.S. exporters of consumer food products are capitalizing on the emerging markets of Africa. The graphing technique used in the study, in combination with trend stability measures for the six proposed congruent regional African markets, introduce a method for identifying market opportunity.     

How sensitive is U.S. agricultural trade to the bilateral exchange rate? Evidence from bulk,intermediate, and consumer‐oriented products

This article examines the dynamic effects of changes in bilateral exchange rates on changes in bilateral trade of bulk, intermediate, and consumer‐oriented agricultural products between the United States and its 10 major trading partners. We find that, for consumer‐oriented products, U.S. exports are highly sensitive to bilateral exchange rates in both the short and long run, while U.S. imports are mostly responsive only in the short run. For bulk products, on the other hand, U.S. exports and imports are relatively insensitive to exchange rate changes in both the short and long run. For intermediate products, exports and imports are responsive to exchange rate changes in the short run, but not in the long run. It is also found that income of the United States and its trading partners has a significant effect on U.S. exports and imports of the three types of agricultural products in both the short and long run.     

Revisiting U.S. country of origin labeling trade damage estimates how does an equilibrium displacement model perform under different scenarios

Mexico and Canada successfully challenged the U.S. mandatory country of origin labeling (COOL) requirements for beef and pork as inconsistent with World Trade Organization (WTO) rules, which ultimately led to arbitration over the level of trade lost due to the COOL measure. During this phase of the dispute, Mexico, Canada, and the United States provided the Arbitration Panel with estimates of the trade losses caused by COOL that were produced using different quantitative methods. The U.S. estimates were based on an equilibrium displacement model (EDM). This article presents a version of the EDM used by the U.S. Government to calculate trade losses due to COOL. The Panel developed its own analysis combining econometric analysis and an EDM that used only supply-side information to calculate changes in Canadian and Mexican livestock trade. The U.S. EDM includes both the supply and demand sides of the market. We use the U.S. EDM and the Panel's assumptions to re-estimate the value of lost trade due to COOL. The inclusion of demand-side effects and domestic COOL costs produces lower estimated trade damages than those produced using the Panel's analysis, validating the EDM as a useful quantitative tool for this type of trade policy analysis.     

A model of the U.S. food system: What are the determinants of the state vulnerabilities to production shocks and supply chain disruptions?

We adapt a Ricardian general equilibrium model to the setting of U.S. domestic agri-food trade to assess states’ vulnerability to adverse production shocks and supply chain disruptions. To this end, we analyze how domestic crop supply chains depend on fundamental state-level comparative advantages—which reflect underlying differences in states’ cost-adjusted productivity levels—and thereby illustrate the capacity of states to adapt to and mitigate the impacts of such disruptions to the U.S. agricultural sector. Based on the theoretical framework and our estimates of the model's structural parameters obtained using data on U.S. production, consumption, and domestic trade in crops, we undertake simulations to characterize the welfare implications of counterfactual scenarios depicting disruptions to (1) states’ agricultural productive capacity, and (2) interstate supply linkages. Our results emphasize that the distributional impacts of domestic supply chain disruptions hinge on individual states’ agricultural productive capacities, and that the ability of states to mitigate the impacts of adverse production shocks through trade relies on the degree to which states are able to substitute local production shortfalls by sourcing crops from other states.     

Implications of the Comprehensive Economic and Trade Agreement for Processed Food Markets

Canada and the European Union (EU) recently completed the Comprehensive Economic and Trade Agreement (CETA) to liberalize bilateral trade. Processed food trade between Canada and the EU is one of the fastest growing markets, in spite of large trade restrictions due to high tariffs and egregious nontariff barriers (NTB). The processed food sector is characterized by firms which differ in size, productivity, produce differentiated products, and engage in monopolistic competition. We implement a four‐region (Canada, the EU, the United States, and the Rest of the World) model of the processed food industry, incorporating these firm characteristics to study the effects of CETA. The results show Canadian and EU bilateral trade flows expand, the number of exporting firms rises, and net welfare in both these countries increases. Though CETA does not liberalize NTBs, we examine the impacts of a 40% cut in NTBs to highlight the benefits that would have accrued had CETA also covered NTBs. Under this scenario, the trade flows would have expanded significantly, and, more importantly, Canadian and EU welfare would have risen by 11.8‐ and 39.4‐fold, respectively. Since CETA excludes the United States, the U.S. processed food industry loses due to greater competition in Canadian and the EU markets, and the net U.S. welfare declines.     

The Effects of NAFTA/CUSFTA on Agricultural Trade Flows: An Empirical Investigation

This paper examines the effects of the North American Free Trade Agreement (NAFTA) and its predecessor, the Canada‐United States Free Trade Agreement (CUSFTA), on agricultural trade flows at disaggregated product categories. The empirical analysis is implemented through gravity models using different econometric methods. It accounts for the baseline NAFTA/CUSFTA‐unrelated magnitudes of trade between member countries throughout the assessment of the NAFTA/CUSFTA trade effects. The benchmark estimates show considerable differences across agricultural product categories. The net post‐NAFTA/CUSFTA magnitudes of trade between member countries are found to be markedly low in some cases, underlining missed regional trade opportunities. The empirical analysis proceeds to estimate the NAFTA/CUSFTA trade effects by time period and by bilateral trading partnership, revealing important variations. Cet article examine les effets de l'Accord de Libre‐Échange Nord‐Américain (ALÉNA) et de son prédécesseur, l'Accord de Libre‐Échange entre le Canada et les États‐Unis (ALÉCÉU), sur les flux commerciaux agricoles au niveau des catégories ventilées. L'analyse empirique est mise en ?uvre grâce à des modèles de gravité en utilisant une variété de méthodes économétriques. Elle compte pour la ligne de base des magnitudes non‐reliées à l'ALÉNA/ALÉCÉU du commerce entre les pays membres à travers l′évaluation des effets de l'ALÉNA/ALÉCÉU sur le commerce. Les estimations de référence montrent des différences considérables entre les catégories de produits agricoles. Les magnitudes post‐ALÉNA/ALÉCÉU nettes du commerce entre les pays membres se trouvent d′être considérablement faibles dans certains cas. Ces résultats soulignent des opportunités commerciales régionales manquées. L'analyse empirique procède à estimer les effets de l'ALÉNA/ALÉCÉU sur le commerce par période et par partenariat commercial bilatéral, et elle montre des variations importantes.     

The Market Structure and Price Competition in China's Wheat Import Market:

This paper reveals that wheat exporters to China compete in an imperfectly competitive market. U.S. wheat exports face strong price competition from Argentina, Australia, Canada, and the European Community, but has a highly elastic demand in China. By adopting an aggressive promotion policy, the U.S. could reduce the market shares of Argentina and Canada. China would shift to wheat from Argentina, Australia, and Canada if U.S. wheat exports were interrupted because of high prices or non-price trade frictions. An expansion in China's wheat imports would accrue to wheat from Argentina and the U.S.     

China and Taiwan access to the World Trade Organization: implications for U.S. agriculture and trade

This paper investigates the impact of China's and Taiwan's accession to the World Trade Organization (WTO) on U.S. and world agricultural trade by means of a 12-region, 14-sector Computable General Equilibrium model for world trade and production. The simulation results show that integrating China and Taiwan into the global trading system could induce more competition on labor-intensive Products and reduce their prices. It could drive up the demand for capital and skill-intensive manufactured goods, thus further improving industrial countries' terms of trade. The expansion of labor-intensive sectors in China could also induce contraction in agricultural exports from China and increase its net agricultural imports by as much as US$9 billion annually, causing food and agricultural exports from other regions to increase. Total U.S. food and agricultural exports could increase by about US$2.4 billion annually, with the non-grain crop sectors gaining the most. The biggest winner from China's WTO accession is China itself. WTO membership could bring a net welfare gain of about US$30 billion a year for China, a substantial benefit compared with the gains for the USA (US$8.5 billion).     

The effects of the Yuan‐dollar exchange rate on agricultural commodity trade between the United States,China, and their competitors

The United States claims that the undervaluation of Chinese currency, the Yuan, causes U.S. exports to China to decrease and imports from China to increase. Furthermore, because the Yuan is undervalued only against the dollar, U.S. competitors have an advantage in exporting to China and China has an advantage over its competitors in exporting to the United States. This study develops a theoretical model to analyze the effect of the Yuan undervaluation on prices, supply, demand, and trade in the United States, China, and their competitors. This study applies a cointegration/error‐correction model to empirically quantify the short‐run and long‐run effects of the devaluation of the Yuan on important agricultural commodities traded between the United States, China, and their competitors. These commodities include Chinese imports of milk, soybeans, and cotton from the United States and U.S. imports of beans, fruit juice, and fruit from China. The results show that Yuan devaluation causes Chinese imports of U.S. milk, soybeans, and cotton to decline and U.S. imports of beans, fruit juice, and fruit from China to increase in the short run and in the long run.