Just as farmers are feeling more confident about agricultural trade thanks to the new U.S.-Mexico-Canada Agreement, better known as the USMCA or the "new" NAFTA (2.0), a special report from Purdue University analysts released last week is blowing the whistle on possible misconceptions concerning the new agreement, indicating the estimated $450 million expansion of U.S. agricultural exports provided for in the new trade deal will be greatly overshadowed by other retaliatory tariffs imposed by the administration’s decision to impose steel and aluminum imports.
The study was produced by Purdue University agricultural economists Dr. Dominique van der Mensbrugghe, Dr. Wallace Tyner, and Dr. Maksym Chepeliev, and titled "How U.S. Agriculture Will Fare Under the USMCA and Retaliatory Tariffs." The study was commissioned by the Farm Foundation, who established the Food and Agricultural Trade Resource Center in an effort to better define trade discussions and provide productive debate and dialogue on trade policy issues.
The study indicates the recently signed USMCA should provide several benefits to U.S. farmers who have suffered from retaliatory tariffs imposed on U.S. trade following President Trump's decision to raise tariffs on steel and aluminum imports earlier this year.
"The United States-Mexico-Canada Agreement (USMCA) [yet to ratified by Congress] should bring a sigh of relief to U.S. farmers. It largely maintains the relatively free market access across the three countries, particularly in agriculture. It improves market access for U.S. dairy and poultry exports towards Canada, providing a modest positive export bump in these sectors," the Study states.
However, the study further notes the new agreement, when and if implemented, will be taking place at a time of high volatility in the trade policy environment, and continuing tariffs imposed by other trading partners will continue to cost farmers in the long run.
"The modest market access improvements in the USMCA will lead to an expansion of U.S. agricultural exports, mostly in the dairy and poultry sectors. However, the retaliatory measures taken to the U.S. decision to raise tariffs on their exports of steel and aluminum will still cause U.S. agricultural exports to decline by $1.8 billion worldwide, and by $1.9 billion to these key trading partners (United States, Mexico and Canada)," the study reveals.
The study summary claims that "in today's broader context of reactive trade retaliation from countries around the world, the United States would see a decline in agricultural exports of $7.9 billion, thus overwhelming the small positive gains from USMCA." And the situation could be worse than face value, especially if the USMCA fails to be ratified and tariff rates revert to the "most favored nation (MFN) status granted to all countries that are members of the World Trade Organization."
The study was designed to offer a more comprehensive look at trade developments between the former NAFTA tri-lateral trade agreement partners and to examine the impact and possible developments that could unfold over the course in the months ahead, including what impacts could be realized by U.S. agricultural interests.
The study includes the following sections:
- Description of overall changes introduced in USMCA
- More detail on agricultural sector changes
- The USMCA changes with the Canadian and Mexican retaliatory tariffs in agriculture that were added
- The USMCA with all the tariff increases over the last 18 months including agricultural sector tariff changes introduced by other countries such as China
- Report of the literature analyses of the impacts of NAFTA elimination
"The new NAFTA agreement, USMCA, consolidates the agricultural market access gains from NAFTA 1.0—fortunately for farmers—and in some sectors leads to an improvement in market access—notably in dairy and poultry exports to Canada. U.S. agricultural exports would increase by an estimated $450 million, largely concentrated in dairy and poultry...[however] the retaliatory tariffs implemented by Canada and Mexico on U.S. agricultural exports will reverse the modest export gains from USMCA—a decline of $1.77 billion rather than a gain of $450 million. In the broadest possible context, with all measures and counter measures, U.S. agricultural exports will decline by around $8 billion—similar in size to withdrawing from NAFTA. These negative trade impacts will be reflected in lower incomes for U.S. farmers, reduced land returns and labor displacement," the study concludes.
To view the full study, click here.