Modernizing and renegotiating U.S. trade agreements with other countries is one of the Trump administration’s priorities. Farmers in Iowa and across the nation are particularly worried about renegotiation of the North American Free Trade Agreement, a 23-year-old pact between the United States, Canada and Mexico. NAFTA has been a huge success for American agriculture and for other sectors of the U.S. economy.
Canada is the No. 2 market for U.S. ag products; Mexico is No. 3. In 2016, U.S. farmers exported more than $38 billion of products to the two nations, or 28% of all U.S. ag exports. Those exports generated more than $48 billion in additional economic activity and supported nearly 287,000 U.S. agricultural jobs.
Mexico is particularly important to Iowa farmers. The top three U.S. farm exports to Mexico are corn, soybeans and pork, with a combined $5.4 billion in 2016, and Iowa happens to be the No. 1 producer of those commodities. NAFTA renegotiation between the U.S., Canada and Mexico is expected to begin in August.
Market access critical
John Weber, past president of the National Pork Producers Council, chairs NPPC’s trade policy committee. Weber, a hog producer at Dysart in eastern Iowa, provided a trade update at the 2017 World Pork Expo in June in Des Moines. “Exports are vital to the U.S. pork industry,” he emphasized. “Market access is extremely important.” He discussed the pork industry’s trade priorities, specifically NAFTA.
While critics of NAFTA point to a $60 billion trade deficit the U.S. has with Mexico — trade with Canada is nearly in balance — they fail to mention two important facts, says Weber.
First, when NAFTA took effect in January 1994, trade between the U.S. and Mexico was only $50 billion each way. Last year, U.S. exports to Mexico were nearly quintuple that amount at $231 billion, and they supported 5 million U.S. jobs. And while imports to the U.S. from Mexico were $294 billion, those, too, supported millions of American jobs. Also, NAFTA has provided benefits beyond trade, including improved U.S. relations with Canada and Mexico, better regional investment and supply chains, increased cooperation with Mexico in fighting drug trafficking and terrorism, and greater political stability.
NAFTA could benefit from an update
“Certainly, after nearly a quarter of a century, NAFTA could benefit from some modernization,” Weber adds. “By redoing the agreement, we can work with our NAFTA partners to make North American standards the global benchmarks, whether it’s for agriculture or automobiles.”
If the U.S. withdraws from NAFTA, which is still a possibility, it would be devastating for American agriculture. Pork producers would be particularly hard hit if exports to their No. 2 (Mexico) and No. 4 (Canada) markets were interrupted. In 2016, more than a third of U.S. pork exports ($2.2 billion worth) went to those two countries. “Last year we shipped $1.4 billion of pork to Mexico and almost $800 million to Canada. Those benefits must be maintained in any renegotiated deal,” he says.
Iowa State University economist Dermot Hayes says withdrawing from NAFTA would likely result in Mexico putting a 20% tariff on pork from the U.S., “which would drive down our exports. At the same time, if Mexico allowed other countries duty-free access, the U.S. pork industry eventually would lose the entire Mexican market.” That would result in a loss of 5% of U.S. pork production at a cost of $14 per hog; the cumulative impact on the U.S. pork industry would be a $1.7 billion loss.
“So, we are asking the Trump administration to first do no harm to agriculture while renegotiating NAFTA,” says Weber. “For our pork industry, that means maintaining zero tariff rates on North American trade.” He adds, “Certainly, we recognize NAFTA hasn’t worked for every sector of the U.S. economy, which is why we support modernizing the trade agreement. By all means, update NAFTA. But let’s make sure the tremendous benefits of that agreement are maintained in any renegotiated pact.”
Focus on keeping our good customers
Maria Zieba, NPPC deputy director of international affairs, recently traveled in Mexico with an industry group and says Mexican buyers of U.S. pork are concerned about the NAFTA negotiations. “Mexico is one of our biggest customers in terms of volume. They want to continue our positive relationship. Earlier, there was a lot of discussion about imposing a 20% import duty on various products, and that caused them to be concerned.”
The biggest worry the U.S. pork industry participants came away with, based on what they heard on the trip, was that Mexican buyers are looking at sources other than the U.S. and diversifying where they purchase pork. “Mexico has always been a loyal customer of ours, so that does raise some concern,” says Zieba. “But we’re pretty confident the NAFTA negotiations, once they begin in earnest in August will shape up fairly well for us.”
The recent Mexico-U.S. sugar trade agreement is a positive signal for upcoming NAFTA negotiations, says Weber. “It’s a benefit to have one of the commodities out of the way when the other free trade negotiations take place later this summer. There was some give-and-take on both sides in the sugar deal. That’s what it’s going to take to update NAFTA.”
The pork industry is concerned that country-of-origin labeling could become part of the negotiations. Since COOL has already been addressed by the World Trade Organization, NPPC doesn’t think it should be part of NAFTA renegotiation. “But if it gets brought up for discussion, we will be there,” says Weber. “It can’t be a trade-distorting labeling system as country-of-origin labeling was. There are a lot of issues that would have to be addressed if labeling is introduced. Our point is we are getting along fine. We don’t think labeling should be part of the negotiations.”
Pursuing trade agreements
After the U.S. withdrew from the Trans-Pacific Partnership (TPP) in early 2017, other countries began looking for bilateral trade agreements. Japan, for example, has started to negotiate with Europe on a trade pact and already has a free trade agreement with Australia. In response, the U.S. pork industry is focusing on achieving an agreement first with Japan, already the leading market for U.S. pork, and then focus on the Pacific Rim region.
“Our staff has been in some of those countries recently talking with people in the public and private sectors about getting more access for U.S. pork in those markets,” says NPPC trade committee chairman John Weber. Protecting pork exports to China also remains a key objective. The U.S. pork industry is also working hard to open markets that are currently closed, such as Argentina, India and Thailand.
Regarding trade relations with the United Kingdom, which has yet to finalize its departure from the European Union, NPPC supports the Trump administration’s trade efforts there. While U.S. and U.K. leaders agreed to preliminary trade talks earlier this year, the U.K. can’t have trade agreements with the U.S. until it formally exits the EU, which could be at least a couple of years. Weber says the pork industry’s “message in the meantime is we are supportive of a free trade agreement with the U.K. only if the U.K. adapts international standards and not EU standards.”