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NAFTA at a crossroads

Damage to U.S. markets already being felt and it’s only going to get worse if Trump withdraws from NAFTA.

“We are fighting a pervasive view that our economy has not benefited from NAFTA. We are coming to a crossroads, and the decisions made on international trade will determine the future economic success of our country,” Sen. Pat Roberts, R-Kan., said during a U.S. Chamber of Commerce discussion on “The Future of NAFTA: The Stakes for American Agriculture & Business."

Roberts is spot on, and more voices like his need to be heard to continue to make the case of how important NAFTA is for agriculture.

“We must educate. Our message must be clear and consistent in every way. We must commit to challenge this view, set the record straight and explain what is at stake. These issues affect real jobs and real lives,” Roberts said.

Commerce Secretary Wilbur Ross recently made comments that harm to American food and agriculture interests due to potential withdrawal from the North American Free Trade Agreement (NAFTA) is an “empty threat” because there is “not a world oversupply of agricultural products.”

To those in agriculture, however, the threat is real, and they’re trying to continue to relay the importance of trade with Canada and Mexico.

A coalition of nearly 90 groups outlined in a recent letter to Ross that notification of a NAFTA withdrawal would cause “immediate, substantial harm to American food and agriculture industries and to the U.S. economy as a whole.”

Iowa State University economist Dermot Hayes said he does not expect Mexico to make concessions in six months if forced to do so by a withdrawal from NAFTA. His research has found that many agriculture sectors, including pork, beef, dairy, corn and soybeans, would have to downsize production at a time when the agricultural economy is already in trouble.

Many of these segments exports 10-15% of domestic production to Mexico or Canada. Recent profit driven-expansion would now be forced to go through multiyear effects of loss-driven production decreases.

“The pain would be localized,” Hayes said, especially in “flyover country,” which has high production of eggs, corn, soybean, beef and dairy.

He said the 20% tariff on U.S. pork that would resume for Mexico would likely create a 15% increase in consumer pork prices in Mexico and force a 5% reduction in U.S. pork production. “That 15% increase stimulates Mexico to increase their production and causes their retailers to look at other countries for alternative sources,” Hayes said.

Mexico represents the largest market for U.S. corn, with 25-30% of total corn exports. If the largest market is eliminated or even reduced significantly, U.S. producers and suppliers would need to find a new home for millions of bushels of corn. Short-term impacts could be 30-50 cents/bu. drop in prices for corn, said Chad Hart, ag economist at Iowa State University.

National Association of Wheat Growers president Gordon Stoner said he would propose that the discussion not focus on “doing no harm” but, rather, “doing no more harm.”

“We’ve already seen markets affected by rhetoric and posturing to date regarding NAFTA,” stated Stoner, a Montana wheat farmer. Mexico has already inked a deal to purchase 30,000 tons of wheat from Argentina.

“Rhetoric has made trading partners very anxious. They’re not going to be held hostage,” Stoner said.

In the wheat market, millers and bakers have to formulate recipes based on where their wheat is sourced. “Once they source another wheat, they’re very hesitant to tinker again with recipes. We are not only losing the sale today, but it is hard to get that sale back in the future,” Stoner explained.

He said 4-6 cents/bu. can determine who gets a sale. So, tariffs ranging from 5% to 40% can knock the U.S. out of the market immediately.

“According to a study by ImpactECON, if Canada, Mexico, and the United States return to 'most favored nation' (MFN) tariff rates upon any withdrawal from NAFTA, the negative impact on the United States will far outweigh any benefits from higher U.S. tariffs, including a net loss of 256,000 U.S. jobs, a net loss of at least 50,000 jobs in the U.S. food and agriculture industry and a drop in GDP (gross domestic product) of $13 billion from the farm sector alone,” according to a letter from a coalition of agricultural groups detailing the impact of a withdrawal.

The coalition's letter warned, "Contracts would be canceled, sales would be lost, able competitors would rush to seize our export markets and litigation would abound, even before withdrawal would take effect."

Mexico will host the fifth round of talks in Mexico City from November 17-21, 2017. Additional negotiating rounds will be scheduled through the first quarter of 2018. When discussions started in August the hope was to wrap up negotiations by the end of 2017 to get ahead of Mexico elections in 2018 and mid-term elections in the U.S.

Hart shared it appears the administration is recognizing this magnitude of these negotiations take time. “I think what we’re seeing is a difference between Mr. Trump as a businessman and a government deal. Businesses can move quicker, force the hand and turn around and redo things. Government-wise, things move much slower,” he said.

“The Administration tends to look at the deals like a real estate property, where you make a deal and move on to the next deal," Stoner said. "We’re dealing with sovereign nations and relationships that are built over years and decades. The current Administration is turning that on its head and trying to walk away from the NAFTA deal.”

The rest of the world is watching the U.S. and wondering whether to take us at our word, Stoner said, adding that these are “long-term decisions that will effect generations of farmers.”

TAGS: Farm Policy
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