Malaysia recently became the latest country to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. The agreement, which emerged out of the ashes of U.S. withdrawal from the Trans-Pacific Partnership (TPP) in 2017, now has membership from 11 nations, including major U.S. trading partners Japan and Vietnam.
It also has a healthy waiting list of countries seeking to join including China, Ecuador, Costa Rica, Taiwan and the United Kingdom, with others including the Philippines, South Korea, Thailand and Indonesia readying applications. This membership benefits from something that seems to be out of vogue for the Biden administration — tariff liberalization. The CPTPP agreement includes the elimination of tariffs on over 90% of goods, including agricultural products.
Despite pressure from Congress and from stakeholders in U.S. agriculture, the Biden administration has so far refused calls to include tariff reduction in its major trade initiative — Indo-Pacific Economic Framework for Prosperity (IPEF). Instead, officials have presented the omission of tariffs as a deliberate feature of IPEF and have cited the pursuit of tariff reduction as part of a practice that has led to fragility in U.S. trade policy. The administration describes IPEF as a 21st century economic arrangement designed to tackle 21st century economic challenges such as climate change, protecting labor rights and building resilient supply chains.
Despite this rhetoric from the Biden administration, the fact is that tariffs do matter. Just take a cursory look at U.S. agricultural exports to China, which fell from $19.5 billion in 2017 to just over $9 billion in 2018. The major factor? Tariffs. Specifically, some $134 billion of retaliatory Chinese tariffs that were imposed on U.S. exports, including agriculture, in response to Trump Administration Section 232 and Section 301 tariffs on Chinese goods.
However, the impact of tariffs is more nuanced and widespread than the China situation. A look across Asia and the U.S. is losing market share because of tariffs.
Take U.S. frozen fry exports to Vietnam, valued at almost $23 million in 2019. This figure now stands at $12.3 million. One major reason is the 12% import tariff faced by U.S. exporters while competitors from Australia, New Zealand, Canada and the European Union enter duty-free because of free trade agreements, including CPTPP. The U.S. was the key player in negotiating these reductions in the original TPP, but our competitors are enjoying the benefits. This is playing out across multiple sectors in Vietnam.
Tariffs that were not reduced in the U.S. “Stage One” trade agreement with Japan, such as frozen blueberries, also remain in place with no prospect for further reduction. Meanwhile, the same product from competitors in the CPTPP, such as Canada and Chile, enters Japan duty free.
These tariff differences in the Asia-Pacific have real-world impacts; they shift contracts, production and supply chains away from the U.S. This results in the loss of jobs and opportunities in agricultural communities throughout rural America.
The U.S. has been a world leader on market access and tariff liberalization for decades, and the benefits are objective and clear to see. The U.S.-Mexico-Canada trade agreement, formally NAFTA, reshaped U.S. trade relations with its neighbors and eliminated virtually all tariffs on goods, including agriculture. The result has been a vast increase in U.S. agricultural exports to Canada and Mexico, from $9 billion in 1993 to over $50 billion in 2021. Exports of U.S. agricultural products to Korea have increased 53% since the implementation of the U.S.-Korea trade agreement (KORUS), which prominently included the elimination of Korean tariffs on over 95% of U.S. exports. These tariff reductions support U.S. economic growth and create jobs.
The focus of the Biden administration on supply chains, climate, the digital economy and workers’ rights is laudable. But these objectives should not be in lieu of long-standing U.S. commitments to open new markets and liberalize tariffs for U.S. agricultural exports. There should be room for both.
With the headwinds caused by inflation, Russia’s war on Ukraine, and a looming global recession, it is more important than ever that market access and tariff liberalization are part of the picture and prioritized in U.S. trade policy. We live in a changing world with new pressures and concerns. But the fundamentals still matter. Market access matters. Tariffs matter. And the U.S. is sitting on the sidelines.
Adam Hollowell is a senior trade policy specialist for Bryant Christie Inc.
