The US-Japan trade agreement, the first major trade pact President Trump has finalized, reduces or eliminates tariffs on more than half of Japan’s $12.9 billion of agricultural imports from the US.
The benefits are spread unevenly across the US agricultural economy, however. Cattle and hog producers will see the biggest gains, as Japan is a significant market, taking about a quarter of all US exports of beef and a sixth of all US exports of pork in 2018. Some 13% of US wheat exports were sold to Japan last year, and the trade pact will be especially favorable for Pacific Northwest farmers who grow the bulk of US white wheat, which is well suited for making Japanese noodles. Smaller gains should be seen by US berry and nut growers.
US exports to Japan are dominated by beef, pork, and wheat, which together accounted for roughly three quarters of the value of US shipments in 2018. The three groups stand to gain the most from the two countries' freer trade relationship.
The trade deal, set to take effect Jan. 1, reduces tariffs on about $7 billion of US goods heading to Japan, and on about $40 billion of goods going in the opposite direction. Conspicuously absent from the pact were rice, select dairy products, and—the pair’s traditional sticking point—autos and auto parts. Still, the agreement represents the two countries’ effort to recapture trade synergies lost when the US withdrew from the multicountry Trans-Pacific Partnership in 2017.
Japan agreed to reduce tariffs on $2.8 billion worth of US beef and pork. In 2018, the US exported 12% of the 12.3 million tonnes of beef it produced, of which 19% went to Japan. In pork, 22% of the 11.9 million tonnes produced were sent abroad, with Japan receiving 15% of the exports. In the past decade, Japan’s share of US beef and pork exports has run as high as 20% and 23%, respectively. So the reduction of tariffs on both meat products is certain to have a meaningful and supportive price effect for US hog and cattle producers and processors.
Other countries that currently receive US beef and pork exports aren’t likely to be shortchanged. With favorable production margins, US producers have an incentive to expand production rather than reroute exports away from established buyers. The long-term nature of trade agreements, along with a low and stable feed-cost environment in the US, suggest continued expansion of US meat output.
US pork and beef production is growing quickly, which will help US cattle and hog producers capture the uptick in US export demand following the US-Japan trade agreement. US wheat production and exports are still recovering from an unfavorable 2017 season.
It’s unclear how the trade pact might affect Japan’s beef imports from other trading partners, which include Australia, New Zealand, and Canada. Japan imports pork from Canada, Mexico, Spain, and Denmark.
Japan also agreed to eliminate duties on $4.3 billion worth of other agricultural products, such as wheat, barley, fruits, nuts, and cheeses. In wheat, excluding durum, the US exported $5.2 billion last year, of which Japan received a healthy 13% share. The biggest benefits from the dropped tariffs will be wheat farmers in states like Montana and the Dakotas who raise hard red spring wheat, and those in states like Kansas, Texas, and Oklahoma who grow hard red winter wheat. Japan bought 14.3% and 10.1%, respectively, of US exports of those varieties.
Neither class stands to gain as much as white wheat, however. Farmers in Washington and Oregon, where the vast majority of the US’ 272-million bushels of white wheat are raised, will be among the top beneficiaries. One of every 20 bushels of white wheat grown in the US ends up in Japan, shipping from the busy Pacific Northwest grain ports like Portland, Oregon. Over the past five years, Japanese purchases account for more than 1 of every 6 bushels of white wheat exported from the US.
The outlook for the trade agreement’s smaller markets, such as those for fruits and nuts, is less bright. The only noticeable rise in demand, and thus in prices, are almonds, sorghum, and frozen potatoes, according to a combined analysis of data from the Global Agricultural Trade System database maintained by USDA FAS and crop value data from USDA NASS. Japan holds large enough shares of US exports so that the reduced tariffs can be expected to make a meaningful impact on production prices. Last year, 7% of the revenue made from US almond exports came from Japan. For sorghum, that figure was 9%, and for frozen potatoes the share was 51%. Most other smaller-market commodities had figures in the low single digits.
It’s possible the US could seek to forge bilateral trade deals with other countries that were also signatories to the Trans-Pacific Partnership. Key members of that pact that have agricultural trade relations with the US include Australia, Vietnam, Chile, and Peru. Together these countries account for more than $1 billion annually in US exports of pork, beef, wheat, fruits, and nuts.