Our current trade agreements and associated tariffs are hurting US farmers. We’re no longer a part of the TPP, and the USMCA has yet to be ratified. A new study out of Purdue University shows just how much US farmers have to lose if deals aren’t reached. We might be facing more retaliatory tariffs from Mexico in the next couple of months, and numerous Ag groups are lobbying Washington to get the USMCA through before any more damage is done. Will the Trump administration’s more conventional approach when it comes to the USMCA agreement work?
Fluctuating Trade Policies Are Hurting Farmers
Todd Neely of DTN had a story published on AgFax titled, “Ag Trade: US Policy Hurting Farmers,” that looked at newly published data out of Purdue University showing how US trade policy impacting agriculture. The initial Perdue study was published in October 2018 by Maksym Chepeliev, Wallace E. Tyner, and Dominique van der Mensbrugghe and updated March 4.
The study looks at both the Trans-Pacific Partnership (TPP) and the United States-Mexico-Canada (USMCA) trade agreements.
After the US pulled out of the TPP, the remaining countries negotiated a new agreement. If we don’t get in on it too, it will be costly for US farmers.
“If the current US trade policy were to continue towards protectionism (i.e., with the US withdrawal from TPP, with the global retaliatory tariffs and if the United States were to entirely withdraw from NAFTA), U.S. agricultural exports would drop by $21.8 billion. These negative trade impacts would be reflected in lower incomes for U.S. farmers, reduced agricultural land returns and farm labor displacement.”
Incomes for individuals in the Ag industry would drop by $4000, and an aggregate welfare loss of $42.5 billion for the U.S. economy, or over $500 per US household.
“What does all this mean? It suggests that US agriculture is entering a volatile period in international trade. The data suggests the sector currently risks losing much of the trade gains achieved over the past three decades. The analysis predicts that if the USMCA is approved, if the trade war ends and if the United States rejoins TPP, US agriculture could see not only the gains of the past decades reinforced, but could also realize the potential for additional trade gains.”
Getting back into the TPP is possible according to Don Buckingham, an attorney with the Canadian Agrifood Policy Institute. The Purdue study argues that some of the groundwork has already been done if we choose to move in that direction. Getting back into the TPP would mean that US Ag exports would increase by about $2.9 billion annually.
“Dairy products experience the largest relative increase in exports at 17.5%, which is equivalent to $1 billion,” the study said. “Similar increase in export values — around $1.1 billion — is observed in other food products sector, while exports of other agriculture and all other food products grow between $600 million and $700 million.”
The Purdue study has similar findings when it comes to the USMCA trade agreement. Our current trade situation with Canada and Mexico is is leading to an export loss of $9.8 billion and causing lasting damage. If we abandon a NAFTA-like deal altogether, agricultural and food exports would drop of over $12 billion annually.
“Even if the trade liberalization situation transpires, there may be a lasting impact to US agriculture export markets, as newcomers solidify their newly acquired market access,” the report said.
Retaliatory tariffs are compounding our problems. Tariffs implemented by Canada and Mexico after the U.S. imposed 25% and 10% tariffs on steel and aluminum imports erased any US gains expected from the USMCA.
“The retaliatory tariffs implemented by Canada and Mexico on US agricultural exports will reverse the modest export gains from USMCA — a decline of $1.8 billion (annually) rather than a gain of $454 million,” the economists said.
Congress is expected to vote on the trade agreement next month.
More Retaliatory Tariffs From Mexico
According to Adriana Barrera and Dave Graham of Reuters, Mexico is eyeing new targets to tariff in order to ratchet up the pressure on Donald Trump for imposing tariffs on imported aluminum and steel. Trump imposed a 25% tariff on imported steel and 10% tariff on imported aluminum last June. Mexico argues that the tariffs hurt commerce. If the US doesn’t lift the tariffs, Mexico apparently will have a “carousel” of targets ready in a couple of months.
Mexican Deputy Economy Minister Luz Maria de la Mora told Reuters that the targeted tariffs would be equivalent to the impact of the Trump tariffs. Up to this point, Mexico has placed tariffs on agricultural goods including pork legs, apples and cheese as well as steel products.
“We’re carrying out an evaluation and there are products from the agricultural sector – we’re probably going to bring in some new ones and take some others out – as well as in the industrial sector and the steel industry,” de la Mora said.
Mexico is hoping that a change to tariff targets will encourage more US businesses to lobby Washington against the tariffs. Trump tried to use the tariffs as leverage while re-negotiating NAFTA. Now that the new USMCA agreement has been made, de la Mora says that argument is no longer valid.
“Mexico is not a national security threat for the United States,” she said. “This is really important; it really needs to be understood that Mexico is a partner, Mexico is an ally.”
Commodity Groups Support USMCA
Western Farmer-Stockman reports that nearly a handful of commodity groups have come out in support of the USMCA agreement. Leaders of the National Corn Growers Association, American Soybean Association, National Association of Wheat Growers and National Sorghum Producers made their announcement at the annual Commodity Classic.
Members of the four organizations will be pushing Congress to ratify the USMCA agreement this year, and also encourage them to keep NAFTA in effect until the deal is done. Mexico and Canada are the US corn industry’s largest corn markets, and we can’t afford to lose them. NCGA President Lynn Chrisp says,
“USMCA is NCGA’s top legislative priority for 2019, and we will be working closely with the Administration and members of Congress to get it ratified.”
Mexico is our second-largest market for whole soybeans. Under NAFTA, our soybean exports to Mexico quadrupled, and they doubled to Canada. Davie Stephens, ASA President and a soybean grower from Clinton, Kentucky would like to keep that trade momentum going.
“Passage of USMCA would boost both national and rural economies, and for soybeans, it would assure us tariff-free access to two strong markets.”
USMCA also includes important provisions for wheat farmers. It also addresses the grading issue that US farmers face when exporting wheat to Canada.
National Sorghum Producers Chairman Dan Atkisson wants to expand opportunities with Mexico and would like to see USMCA ratified quickly.
“The new USMCA agreement with Mexico and Canada is a win for American producers, and having an agreement in place will safeguard the traditional second largest importer of U.S. sorghum.”
The Association of Equipment Manufacturers (AEM) and as many as 200 other organizations have joined the USMCA Coalition to secure congressional approval of the USMCA. Dennis Slater, president of AEM said,
“Once the USMCA is ratified, U.S. farmers can more reliably invest in their businesses, which will greatly benefit our industry’s 1.3 million U.S. workers.”
“We applaud the National Corn Growers Association, American Soybean Association, the National Association of Wheat Growers, and National Sorghum Producers for announcing their endorsement of the USMCA.”
Trump’s Play on USMCA
American Ag Network says that President Trump is playing by the book when it comes to the USMCA. This is a somewhat unusual step for an administration that is known for breaking with convention. White House officials apparently have had several meetings with lawmakers and are doing their best to “charm” the Democrats that have come out against the deal unless certain changes are made.
Many groups in border states are eager to negotiate a deal without withdrawing from our current trade pact.
Maybe a more conventional approach by the Trump Administration with work this time. Many groups in agriculture are eager to make the USMCA trade agreement finalized, and are lobbying Washington. In the meantime, expect tariffs on both sides to ramp up- especially from Mexico. According to the Purdue study, US agriculture has a lot to lose if we don’t rejoin the TPP and can’t get the USMCA agreement ratified.