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Trump took something from America's cattlemen, and now they want it back

CNBC logo CNBC 4/18/2017 Ylan Mui
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One question loomed large Tuesday during the vice president's first diplomatic mission to Japan: Where's the beef?

Take that literally: The $60 billion U.S. beef industry was one of the most ardent backers of the now-defunct free trade agreement known as the Trans-Pacific Partnership. That sweeping deal covered a dozen nations along the Pacific Rim, but the big prize for the United States was improved access to the 127 million consumers in Japan.

That is, until President Donald Trump formally withdrew from the agreement on his fourth day in office. On Tuesday, Vice President Mike Pence called TPP "a thing of the past."

"The United States seeks stronger and more balanced bilateral trade relationships with every country, including Japan," Pence said. "Our goal is simple: We seek trade that is free, and we seek trade that is fair."

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Commerce Secretary Wilbur Ross — the administration's point person on trade — joined Pence in Tokyo for bilateral trade talks with Japan's deputy prime minister and other senior officials. Pence emphasized the role of Japanese investment in the United States in creating jobs and fostering economic growth. But some tensions remain: The Treasury Department last week said it is "monitoring" Japan's currency practices amid the large trade deficit.

"I'm not sure Japan will be that interested" in a new deal, said Miriam Sapiro, who served as acting U.S. trade representative under President Barack Obama and is now a partner at PR firm Finsbury. "Some concessions that Japan made because the U.S. asked might not make sense in a bilateral agreement."

For the beef industry, the stakes are particularly high. Japan's tariff on U.S. beef was slated to drop from 38.5 to 9 percent over the next 16 years under TPP. Now producers are pushing the administration to deliver terms that are at least as favorable.

"That's the greatest market access ever negotiated — so far," said Kent Bacus, director of international trade at the National Cattlemen's Beef Association, a trade group. "We're hopeful that the new administration will be able to strike a bilateral deal very soon and either improve upon that or at least get us the 9 percent that TPP would have offered."

'We sell everything but the moo'

Opponents of TPP argued that the agreement did not include strong protections for workers and the environment. There were also broad concerns that decades of free trade had done little to help middle-class workers and contributed instead to the steady decline of blue-collar jobs in America — a frustration that helped fuel Trump's campaign.

But Trump also carried key farm states like Iowa and Nebraska, despite his break with the agricultural community over TPP. Beef exports totaled $6.3 billion last year, according to the U.S. Meat Export Federation. Japan accounts for roughly one-sixth of that amount. But Bacus said the market is important for another reason: Japanese consumers are especially interested in what are known in the industry as "offals" — organ meats such as beef tongue that U.S. households are reluctant to buy. In Japan, they can fetch a premium.

"My father likes to say we sell everything but the moo," said Kelley Sullivan, who runs Santa Rosa Ranch in Texas, one of the largest producers in the state. "There is nothing lost in a beef cow. And that is really the benefit that we have, and that's where our market again lies."

Lower tariffs could mean a big boost in business for the nation's largest beef producers, such as Tyson Foods (TSN). On the company's quarterly earnings call in February, Chief Executive Thomas Hayes sounded a cautionary note on the shift in the U.S. stance on trade.

"In general, trade restrictions that impact export demand also can affect domestic supply," he said. "We're planning for different scenarios and will be prepared to adapt if there's any change in policy."

Cargill (), another major beef producer, was more blunt. Chief Executive Dave MacLennan delivered a speech last month titled "Standing Up for Trade." It was a rare foray into public policy for the company, but the message was clear.

"When trade is restricted, economic engines weaken on both sides of the equation," MacLennan said. "Protections do more harm than good."

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