From the Editor: U.S.'s troubling trade policy

by Arvin Donley
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North America trade
These are uncertain times for farmers and agribusiness companies in the three countries governed by the North American Free Trade Agreement (NAFTA). Not only are they dealing with four straight years of depressed grain prices, but the trade deal that has been good for U.S. and Canadian farmers — while perhaps not as positive for Mexican producers — could unravel in the coming months. Signed in 1994, NAFTA fundamentally reshaped North American economic relations, driving an unprecedented integration between Canada and the United States’ developed economies and Mexico, a developing country.

Donald Trump, the surprising winner of the 2016 U.S. presidential election, contends that the deal has shifted U.S. manufacturing production and jobs to Mexico, and therefore in August of last year his administration reopened negotiations with Canada and Mexico with the aim of reforming the pact and possibly even withdrawing from it if changes aren’t agreed upon.

And while there may be some truth to Trump’s claim regarding manufacturing, there’s also clear evidence that NAFTA has been a big winner for U.S. agriculture. Since NAFTA was implemented 24 years ago, U.S. farmers have quadrupled their exports to Canada and Mexico and the two nations rank second and third, after China, as markets for U.S. farm goods.

Canada also has benefited as its total agricultural exports to Mexico and the United States have tripled.

Meanwhile, Mexico’s results have been mixed, as some economists have blamed NAFTA for exposing Mexican farmers, especially corn producers, to competition from heavily subsidized U.S. agriculture. A study from the Center for Economic Policy and Research found that NAFTA put nearly 2 million small-scale Mexican farmers out of work.

corn field
While the Trump administration appears fixated on manufacturing, the U.S. agricultural community, particularly corn producers, stands to lose the most if the deal falls apart. Mexico, which currently purchases 98% of its corn from the United States, has said it is considering offering duty-free access to Brazilian and Argentine corn as an alternative to U.S. imports.

If the United States withdraws from NAFTA, which removed high tariffs on Mexican-bound corn from the United States, Mexico could reinstate tariffs as high as 37% on U.S. corn without breaching any international rules. This would, in effect, halt U.S. corn imports, which in recent years have been worth more than $2 billion annually.

From a U.S. perspective, the question is can Trump negotiate a deal that addresses the loss of U.S. jobs to Mexico while protecting all the advantages that the agreement brings to U.S. agriculture? It seems doubtful.

Renegotiations also have begun on another less publicized free trade agreement between the United States and South Korea, called KORUS. Signed in 2012, it has resulted in reduced tariffs on U.S. products bound for South Korea and gained market share for U.S. agricultural products in the Asian Pacific region.

Trump’s first shot across the bow of globalization occurred a year ago when he withdrew the United States from the Trans Pacific Partnership (TPP). The TPP, which was never approved by the U.S. Congress, was a 12-nation trade pact the Obama administration framed as a way for the United States to establish economic leadership in the region. It’s strange to see the United States, which for many years had bipartisan support for forging free trade agreements, taking a protectionist position. But with or without the U.S.’s leadership, the pursuit of free trade agreements is vital for the health of global agriculture.

For 36 years, World Grain’s stance on this issue has been crystal clear: free trade is good for the global grain and grain-based foods industry, and more trade agreements between nations — not fewer — should be sought.