It took Donald Trump 71 days after winning the presidency to settle on an Agriculture secretary. It took him four more days to unsettle much of the agriculture industry.
First, the freshly inaugurated president withdrew on Jan. 23 from the Trans-Pacific Partnership treaty, a 12-nation pact that was expected to boost U.S. agricultural exports by more than $7 billion annually over the coming decades, according to the U.S. Department of Agriculture.
Then, Press Secretary Sean Spicer said the president was thinking about financing his long-promised southern border wall with a 20% tax on “imports from deficit countries, like Mexico.”
That announcement, followed by a flurry of clarifications and caveats, appears to be part of a plan for a massive tax overhaul aimed at altering the trade balance country by country. U.S. farmers, who get about 20% of their annual revenue from trade, could be hit especially hard if countries choose to retaliate. Consumers, too, would suffer if a border tax increases the price of foreign food.
U.S. agricultural and related products — including dairy, meat, forestry products and fish — amass a $5-billion trade surplus with the world, according to the Department of Agriculture. Among the biggest sellers are soy beans, grains, dairy products, meat, nuts, hay, wine, fruit and vegetables.
Farmers and ranchers from Florida to Washington have experienced double-digit growth in many of these commodities since the mid-1990s, according to the USDA.
For example, exports of corn from Iowa to trade-agreement countries more than doubled in the past decade, with more than 60% of the state’s shipments going to Mexico, a partner in the North American Free Trade Agreement. Louisiana’s exports of soybeans to trade-agreement partners rose 15% in the same period, driven largely by trade with Latin American trade pact countries.
But no state has more at stake than California. It leads the country in agricultural revenue, and its farmers and ranchers are twice as dependent on foreign trade as the country as a whole. Last year, growers in the state earned $21 billion from trade — about 44% of their total revenue, according to the California Department of Food and Agriculture.
Without California, the U.S. would not have exported a single tree nut, table grape, raisin, olive oil drum, garlic clove, artichoke, fig, date, kiwi or dried plum.
The Golden State last year also exported more than 90% of the wine, processing tomatoes, avocados, carrots, broccoli and celery in the U.S. California’s berries, peaches, nectarines, apricots, melons, oranges, lemons, tangerines, mandarins, spinach, lettuce, seasonal vegetables and rice constituted more than half the U.S. exports of those commodities.
Some of the countries most responsible for the United States’ overall trade deficit are California agriculture’s best customers — China and Mexico among them.
As recently as Jan. 28, Trump accused China of protecting its exports by depressing the value of its currency, the yuan. He has called the North American Free Trade Agreement, which links the U.S. with Canada and Mexico, “the worst trade deal ever” and threatened to tear it up.
The comments drew quick reaction from California officials, even as they scratched their collective heads over what Trump actually intended to do.
Altering NAFTA “starts to create some market turmoil, which ripples out through the supply chain — not just the farmer but the transporter, the processor, the ports, longshoremen. It affects a lot of jobs,” said Josh Rolph, manager of federal policy for the California Farm Bureau Federation.
“The U.S.-Mexico trade relationship is very important. We would be concerned to see that relationship negatively affected,” said Ken Barbic, senior director of federal government affairs for Western Growers Assn., an agricultural industry group.
Mexico supplied the U.S. with more than $5 billion in fresh vegetables, $1.4 billion in processed fruits and vegetables, $4.5 billion in fruit and $2.8 billion in beer and wine last year, according to the USDA. All could be targets of a tax.
California’s top exports to Mexico — dairy, forestry products, prepared foods and fresh fruit — could find themselves in the political crosshairs.
Likewise, taxes could be imposed on Canada’s imports of wood products, processed foods and fish, and the country potentially could retaliate against the fruits and vegetables, wine and beer, nuts and processed foods that California exports north.
Even a small alteration in trade — a strike, slowdown or other protest in Mexico, for example — could hit consumers, who expect fruits and vegetables in the produce aisles year-round, regardless of growing seasons.
Consider the avocado: Last year, prices skyrocketed when Mexico could not harvest them during a few weeks when there was a gap in U.S. supply, itself beset by drought. Restaurants and sandwich shops began charging extra, guacamole disappeared from cafe plates and consumers griped.
A similar weather problem in Mexico lately has driven up the price of asparagus, a crop that has shifted to Mexico since the passage of NAFTA. Unable to compete, California growers have cut production of the crop by 70% since the mid-1990s, according to the state Department of Food and Agriculture.
The last time the U.S.-Mexico relationship got rocky, it cost U.S. growers close to $1 billion in lost sales from 2009 to 2011, according to USDA economist Steven Zahniser. That’s when Mexico launched retaliatory tariffs against dozens of U.S. agricultural products, over U.S. reluctance to comply with NAFTA provisions to allow Mexican trucks into the States.
Resolving a tiff in one economic sector by using food as a pawn is not an unusual tactic. Food frequently bears a steeper penalty in trade wars because it carries a lot of political clout. It doesn’t last as long as politicians can argue, for one. And few people riot over the price of a smartphone, laptop or car, but they’ve been known to overthrow governments over a spike in the price of food or shortages of staples.
Russia continues to ban food imports from the European Union, after those countries sanctioned Russia over its annexation of Ukraine’s Crimea region. In 2015, Canada and Mexico were set to retaliate against U.S. wine, fruits, meat, cheese and dozens of other items over a dispute involving meat labeling.
“I’ll tell you where I’m most worried about: It’s not between-country negotiations; it’s when we get a mercantilist, deal-by-deal kind of mentality,” said Daniel Sumner, a resource economist who heads UC Davis’ Agricultural Issues Center. “You don’t want your president telling businesses how to run their business.”
So far, though, cajoling businesses appears to be Trump’s approach. Last month, he threatened to tax General Motors over its manufacture of the Chevrolet Cruze hatchback in Mexico. GM countered that all of the Cruze sedans are built in Ohio, although several thousand Cruze hatchbacks from Mexican factories are sold here.
Trump also threatened a 35% tax on Fords if more of its vehicles were made in Mexico.
He has yet to mention taxing avocados.
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