About 35 percent, or one-third, of U.S. farm income comes from this nation’s export market, making trade with other countries not simply a good idea, but “very, very important,” says Dr. Luis Ribera, professor and director of the Center for North American Studies at Texas A&M University.
The U.S. is the largest agricultural exporter in the world, he notes, shipping $135 billion in commodities in 2016. “We depend on agricultural markets,” he said at the Rural Economic Outlook Conference at Stillwater, Okla. “We need to maintain the markets that we have — and possibly expand them.”
In 2015, 71 percent of the cotton grown in the U.S. was exported, along with more than 55 percent of sorghum and rice. U.S. agricultural imports are a multi-billion dollar industry, accounting for $115 billion in 2016. Of the coffee and limes Americans consume, 100 percent are imported. “What would happen if we didn’t have coffee?” Ribera asked, getting a laugh from conference attendees when he jokingly answered: “Chaos!”
Americans spend about 6.4 percent of their consumer dollars on food. Contrast that with countries like Nigeria, where consumers spend 56.4 percent of their income to eat. “The 6.4 percent U.S. consumers spend is the cheapest in the whole world,” Ribera says. “That means we cover our food needs with only 6.4 percent of our income, leaving the rest to buy other things, like gadgets, or homes, or travel.
With 25 percent of the world’s gross domestic product (GDP), trade with the U.S. is of great interest to other countries, he says. “We have 350 million people [in the U.S.] with money, who control about 25 percent of the world economy, so there’s no question about why other countries want to get their products into the U.S. market.”
And that’s where the North American Free Trade Agreement comes into play. NAFTA, the trade pact between the U.S., Canada, and Mexico, signed into law in 1993 during the Clinton administration, was designed to reduce tariffs and tariff barriers, as well as increase trade in services among countries. And, according to Ribera, it has been very successful in fulfilling its objectives.
“We have quadrupled our exports to NAFTA countries, while only tripling exports to the rest of the world,” Ribera says. “NAFTA is very important for U.S. agriculture. There are a lot of things about it that can be improved, but there’s no question it has been successful in terms of agricultural trade.”
U.S. agricultural exports have increased from $46.2 billion in 1994 to $134.9 billion in 2016, a 192 percent increase, he says. During the same period, U.S. agricultural exports to Canada and Mexico grew from $10 billion to $38 billion, a 288 percent increase, making those nations the second and third largest markets for our exports.
With all the discussion by the Trump administration about renegotiating NAFTA, Ribera says, it is important to point out that, if agriculture were the main issue, he thinks it would be easier to get an agreement done. But agriculture constitutes only about 7 percent of trade between the three countries.
“So basically, non-agriculture issues have dominated the NAFTA discussion,” he says. “There are some agricultural issues — for example, the Canadian dairy, poultry and egg supply system, but those are smaller issues compared to the larger issues of, say, the automobile industry.
“The country of origin rule is a main issue of the Trump administration. In order for a car to move between the three countries and be considered tariff-free, about 62.5 percent of the parts have to be produced in NAFTA countries. The Trump administration wants to increase that percentage to near 85 percent, or have a specific quota on how much needs to be produced in the U.S. for that car to be sold in the U.S. tariff-free.”