U.S. signs trade deal with Japan, securing important market for Washington wheat

The Washington wheat industry got its first good news in more than two years Wednesday when President Donald Trump announced a new bilateral trade deal with Japan, which traditionally has been among the biggest importers of the region’s wheat.

Trump and Japanese Prime Minister Shinzo Abe announced the agreement, which eliminates tariffs for agricultural and industrial goods, and digital trade, on the sidelines of the United Nations General Assembly.

Trump earlier had put Washington wheat markets in jeopardy when he decided in 2017 to pull the United States out of the Trans-Pacific Partnership, which put U.S. wheat farmers at a graduating trade disadvantage to both Canada and Australia.

“This is great. We are excited,” said Glen Squires, CEO of the Washington Wheat Commission. “We have been working on this for some time.”

As part of the announcement, Trump said U.S. officials are still negotiating toward a bigger deal with Japan, one of the world’s largest economies.

“This is a big chunk, but in the fairly near future we’re going to be having a lot more comprehensive deals signed with Japan,” Trump said.

The president said Japan will open new markets to about $7 billion in U.S. agriculture products, and tariffs would “now be significantly lower or eliminated entirely” on American beef, pork, wheat, cheese, corn, wine and more.

The trade talks between Tokyo and Washington, D.C., are aimed, in part, from the U.S. perspective to redress a chronic trade imbalance that’s in Japan’s favor, which U.S. figures show totaled $67.6 billion in 2018.

“This is a huge victory for America’s farmers, ranchers and growers, and that’s very important to me,” Trump said.

Michelle Hennings, executive director of the Washington Association of Wheat Growers, visited Japan right after Trump unilaterally pulled out of the TPP agreement.

“We got the message that the U.S. has to get back into the TPP or we are not going to be buying wheat from you. We are not going to do a bilateral agreement,” she said, referring to Japan. “It took years and years to put that relationship together. And, we didn’t want to jeopardize that.”

Just recently, Hennings doubted Japan would agree to a new deal unless Congress ratified a reworked trade agreement with Canada and Mexico to replace the North American Free Trade Agreement.

“The main thing is it gets us to an equal footing with our competitors as far as a price standpoint,” Hennings said. “This is just great news.”

Squires, of the Washington Wheat Commission, explained that the Japanese government purchases wheat and then resells the wheat to the country’s flour mills at a higher price, called a markup.

“So, their flour mills are paying more than the world price of wheat,” Squires said. Since Canada and Australia remained part of the TPP, their “markup started going down 4 to 6 percent a year” putting Washington exporters at a disadvantage over price.

“Suddenly we were less competitive,” he said. “The flour mills in Japan still wanted access to our wheat. So, they had the same message going up to their trade people as we were to our trade people.”

Last year, Japan imported about 3 million metric tons of U.S. wheat. Of that, roughly 889,000 metric tons came from the Pacific Northwest, of which about half came from Washington farmers.

However, Japan primarily wants a specific type of wheat, Squires said.

Japan prefers what’s called western white wheat, which is made up of 80% soft white wheat and 20% of a sub-class of white wheat called “club” wheat.

“It’s a weak gluten-type of wheat,” Squires said. “They use it in their sponge cakes and pastries. Some 80% of the club wheat is produced in Washington. They are our No. 1 buyer, by far. That’s another reason why this agreement is especially important for us.”

The Philippines actually imported more wheat recently than Japan, but over time, Japan has been the most important import market, he said.

U.S. Sen. Maria Cantwell, D-Wash., applauded the deal on Wednesday.

“This agreement will help level the playing field in an important market for our wheat growers who were at a serious disadvantage to growers in Canada and Australia,” Cantwell said in a statement. “The Trump administration should also end the trade war with China and tariffs costing American families more than $1,000 a year.”

Neither Hennings nor Squires believe the agreement would cause an immediate spike in prices, which were hovering this week at about $5 a bushel, well below what most farmers consider a price needed to cover the cost of production.

“But it’s certainly a message to the market that long term, we are going to be more competitive and there is going to be demand,” Squires said. “Without the agreement, the handwriting was on the wall that our market share was going down.

“Now with this, we are still competitive,” he continued. “Certainly, this is great news.”