The North American Free Trade Agreement is no more. It’s been replaced by a new U.S. trade agreement with Mexico and Canada, and renamed the U.S.-Mexico-Canada Agreement (USMCA).
The new agreement is seen as progress by Iowa farm and business leaders, who hope the momentum will lead to a new trade pact with China. But there’s still no answer to the question: When will the tariffs be lifted?
President Donald Trump announced the USMCA agreement Oct. 1, and a trade delegation from Taiwan was in Iowa to buy U.S. soybeans. The visitors from Taiwan were at the Iowa state Capitol, in the office of Iowa Lt. Gov. Adam Gregg, to sign a “letter of intent” to buy $1.5 billion worth of soybeans over the next 24 months. Leaders of the Iowa Soybean Association were also on-hand.
“This announcement by our Taiwanese trading partners to increase purchases of U.S. soybeans is welcome news,” says ISA President-elect Tim Bardole of Rippey. “As a soybean farmer, I can say firsthand we need some good news.”
Encouraged by new trade agreement
This year’s U.S. soybean crop is projected to set a record. “We’re good at growing soybeans, and Iowa and U.S. farmers are committed to ensuring we are a reliable supplier and that our soybeans are of the highest quality,” Bardole says. “Taiwan knows this, evident by their intent to increase imports of U.S. soybeans by 37% compared to last year.”
Bardole is also encouraged by the new U.S. trade agreement with Mexico and Canada. “As long as we’re getting trade deals with countries, it makes me more optimistic that we could get a trade agreement with China,” he says.
While Trump and the leaders of Canada and Mexico have touted the new trade pact between the three countries as historic and benefiting farmers and workers across North America, USMCA is far from finalized. The agreement must be ratified by all three countries. Leaders of all three are likely to sign the new trade pact by the end of November.
In the U.S., it then must be approved by Congress. Congress is unlikely to vote on the accord until early next year, when Democrats could hold a slim majority in the House and possibly even control the Senate, as a result of midterm elections in November.
If it is approved and goes into effect, each of the three countries must renew USCMA every six years. If it is not renewed, the agreement will expire after 16 years. Iowa farm leaders say agriculture was a winner under NAFTA, and this new trade pact protects those advantages.
Iowa ag leaders say it’s positive step
Iowa Farm Bureau President Craig Hill says the new agreement is a much-needed step to keep vital trade flowing. “The U.S., Mexico and Canada Trade Agreement is a step forward for trade. Except for dairy, the USMCA agreement brings relatively few changes to ag trade, compared to the previous NAFTA agreement.”
He adds, “Thanks to this new agreement, Mexico will remain a solid importer of Iowa corn, soybean products, pork, beef and turkey. While Iowa isn’t a huge dairy exporter, the new agreement can still bring a moderate positive impact because it has more favorable tariffs for our nation’s dairy industry.”
In Iowa, leading the nation in hog production, “the USMCA agreement is, in part, a positive step forward for our hog farmers,” Hill says. “That’s because Iowa and Canada are part of the same supply networks; we get substantial amounts of feeder pigs from Canada and add value to them with Iowa corn, labor and our slaughtering capacity. We then ship pork back to Ontario and Quebec, essential markets for Iowa hog farmers.”
What about Mexico? Challenges remain with Mexico as a market for our hogs. “But it’s a key fact that all three countries engaged in the USMCA agreement didn’t make the negotiation a food fight,” Hill says. “Ag trade remained consistent while details of the agreement were underway, which is in sharp contrast to how China has negotiated trade issues.”
U.S. tariffs on steel and aluminum from Canada and Mexico remain in effect as negotiations continue, meaning tariffs on U.S. pork, ethanol and some other ag products will remain in place.
“We continue to urge the Trump administration to remove U.S. tariffs on Mexican steel and aluminum imports so that Mexico will lift its 20% retaliatory tariff on U.S. pork,” says Gregg Hora, Iowa Pork Producers Association president. “Merely ratifying the agreement doesn’t remove the retaliatory tariffs on U.S. pork.”
IPPA supports the USMCA trade pact, if it will provide zero tariff access to markets in Mexico and Canada for U.S. produced pork, he adds.
Cattlemen eager to see USMCA details
The Iowa Cattlemen’s Association issued this statement: “For more than a year, cattle producers have waited with bated breath, hoping NAFTA would be renegotiated without harming the beef industry. Now an agreement between the U.S., Canada and Mexico has been announced. The USMCA is intended to replace the 24-year-old NAFTA trade pact.
“Citing unfair provisions for the U.S. manufacturing industry, President Trump made threats over the past year to withdraw the U.S. from NAFTA completely. However, NAFTA has been one of the greatest success stories in the history of the American beef industry. NAFTA removed tariffs on U.S. beef exports to Canada and Mexico, developing roughly $2 billion in annual sales. Since NAFTA was implemented in 1993, U.S. beef exports to Mexico have increased more than 750%.”
Renegotiation of NAFTA has been ongoing since August 2017, causing uncertainty for two of the U.S. beef industry’s top export markets. In 2017, Mexico was the third most valuable export market for U.S. beef, and Canada was fourth. The two countries account for nearly $70 per head of value.
“Our desire has always been to protect the market access and scientific standards that NAFTA has provided for the U.S. beef industry for nearly 25 years,” says JanLee Rowlett, ICA government relations manager. “We are eager to hear more details about USMCA and hope it will continue the successful trade relationship we’ve had with Canada and Mexico.”
The new trade agreement doesn’t affect any of the tariffs the U.S. imposed on steel and aluminum from Canada, and a 10% tariff on prepared beef products exported to Canada remains in place. The Canadian tariff was put in effect in July in retaliation for U.S. steel and aluminum tariffs.
“ICA will continue to encourage trade agreements favorable for the beef industry, including a bilateral agreement with Japan and increased trade with China,” Rowlett says.
Corn farmers welcome agreement
Curt Mether, Iowa Corn Growers Association president, says, “While we look to the opportunity to fully evaluate the details of this agreement made in principle with Mexico and Canada, we applaud the Trump administration for finding a path forward with these two important trade partners as it has the potential to deliver the market access Iowa farmers and rural America need.”
Trade policy has a big impact. “The success of our rural economies depends on expanding markets for corn,” Mether says. “For Iowa agriculture to thrive, we need trade agreements that recognize how important it is that the U.S. meat and grain industries including beef, pork, corn, soybeans and biofuels have market access at a competitive level in North America and across the globe. ICGA is committed to join with other farm organizations in working with the Trump administration on ways to both preserve and expand ag sector gains achieved in the North American market.”
Since its passage more than 20 years ago, NAFTA has profoundly changed North American agriculture. NAFTA eliminated nearly all tariff and quota restrictions in ag, resulting in an integrated system between Canada, Mexico and the U.S. This propelled these countries to the top of the U.S. list in importance for ag trade. For the past 20 years, U.S. ag exports to Canada and Mexico tripled and quintupled, respectively. One in every 10 acres on U.S. farms is planted to feed neighbors to the north and south.
Mexico is the No. 1 market for U.S. corn and No. 2 for U.S. distillers dried grain with solubles. Canada ranks as the ninth-largest customer for U.S. corn, DDGS and ethanol. The U.S. meat industry has also benefited from duty-free access to Mexico and Canada.
“Iowa farmers want to continue to serve this important international customer base and expand our export opportunities,” Mether says. “We look forward to working with the Trump administration and Congress to preserve and expand our competitive edge in ag with this vital agreement.”