The deals struck by the U.S., Mexico and Canada in renegotiating the North American Free Trade Agreement promise new trading opportunities for U.S. farmers, but the Trump administration’s trade wars and the tariffs that go with them more than negate the potential gains, according to a new study presented today by the Farm Foundation.
The three-country pact - now dubbed the United States, Mexico, Canada Agreement with the unwieldy acronym USMCA - is expected to eventually increase U.S. exports of mostly dairy and poultry by $450 million annually. It’s a significant boost, said Dominique van der Mensbrugghe, a research professor at Purdue University and one of the authors of the study, but retaliatory tariffs being levied on U.S. farm commodities by Mexico, Canada, China and other countries threaten to far outweigh gains from the USMCA.
The study finds that Canadian and Mexican tariffs “will cause U.S. agricultural exports to decline by $1.8 billion,” according to van der Mensbrugghe and the other authors, all of whom work at Purdue. If Chinese and other tariffs are included in the calculations, “the United States would see a decline in agricultural exports of $7.9 billion, thus overwhelming the small positive gains from USMCA.”
The U.S. hit Mexico and Canada with tariffs on steel and aluminum on May 31 and both countries have retaliated. Mexico responded with tariffs that rose quickly to 20-25 percent on U.S. cheese, pork, potatoes, apples and other commodities.
Canada is also imposing new taxes on the U.S., but those tariffs focus mainly on value-added products like ketchup, strawberry jam, yogurt, maple syrup and whiskey.
China is more complicated. The country has hit just about every U.S. farm commodity with import taxes, retaliating both against the tariffs the U.S. placed on steel and aluminum as well the U.S. tariffs aimed at punishing China for intellectual property theft. China has been historically the largest foreign market for U.S. soybeans, but that has changed this year since China levied a 25 percent tax on the oilseed.
The U.S. has exported only about 202,000 tons of soybeans to China in the marketing year that began Sept. 1, John Baize, president of John C. Baize and Associates and a consultant for the U.S. Soybean Export Council, told Agri-Pulse in an interview. By this time last year the total was 6.4 million tons.
There’s no telling how long these retaliatory tariffs on U.S. ag commodities will last. Many expected the U.S. to exempt Mexico and Canada from the metal tariffs after the USMCA deals were reached, but that did not happen.
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President Donald Trump confirmed for Agri-Pulse in an interview that he will meet with Chinese President Xi Jinping at an upcoming G20 meeting in Argentina, but also stressed that the trade war won’t be ending soon.
“China will happen, but you've got to have a little time,” Trump said. “They've been living very well off the United States. And you know who understands that better than anybody else? The farmer. They've told me, 'Take your time. We have total confidence. We trust you.' And they said that with Canada and Mexico, and now they're saying it with China.”
Meanwhile, the U.S. ag sector continues to hope that the U.S., Mexico and Canada will all ratify the USMCA. If that doesn’t happen, the fear remains that Trump will withdraw the U.S. from the existing NAFTA deal as the president has threatened to do many times.
“The fact is, NAFTA has been a disaster for the United States -- a complete and total disaster,” Trump said last year in a Wisconsin speech. “It’s been very, very bad for our companies and for our workers, and we’re going to make some very big changes or we are going to get rid of NAFTA for once and for all.”
If that happened, van der Mensbrugghe said, the three countries would likely revert to pre-NAFTA tariff levels that are especially high on commodities like dairy and meat. U.S. ag exports would drop by about $ 9 billion annually if that happened he said and consumers would face much higher food costs.
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