Ag ‘Risks Losing Much of the Trade Gains Achieved Over the Past Three Decades’
The U.S. food and agriculture sector would lose nearly $22 billion in exports, equal to 15% of this year’s sales forecast, if the U.S. scrapped NAFTA without a replacement on top of withdrawing from TPP, said three Purdue economists in a report on Monday. “Under this more pessimistic outcome, the negative trade impacts would be reflected in lower incomes for U.S. farmers, reduced land returns, and labor displacement.”
President Trump threatened repeatedly to terminate NAFTA as a club to negotiate its successor with Canada and Mexico and again to force congressional approval of the new pact. Ratification of the United States-Mexico-Canada Agreement (USMCA) “is not a done deal,” said Dominique van der Mensbrugghe, one of the Purdue economists, at a Farm Foundation forum in Washington.
The three economists estimated a $12 billion loss in annual ag exports if NAFTA is dissolved and the USMCA is not ratified, with pork, poultry, and dairy hit the hardest.
An additional $9.8 billion in exports — half of it in oilseeds such as soybeans — would be lost due to tariff retaliation and to trade advantages given to U.S. competitors by the so-called TPP-11 countries that struck a free trade agreement after Trump exited. The losses would develop over a few years, said van der Mensbrugghe.
By contrast, U.S. ag exports would grow by $454 million a year if USMCA is ratified and by $2.9 billion if the U.S. joined the TPP, said economists Maksym Chepeliev, Wallace Tyner, and van der Mensbrugghe.
“What does this all mean? It suggests that U.S. agriculture is entering a volatile period in international trade,” said the report. “The data suggest the sector currently risks losing much of the trade gains achieved over the past three decades.”
Canada and Mexico are the two largest food and ag trade partners of the U.S. and account for one third of combined U.S. ag exports and imports. The two nations’ share of U.S. ag trade doubled since NAFTA took effect in 1995 and guaranteed duty-free access for most U.S. ag products.
If NAFTA were terminated, tariffs would revert to most favored nation (MFN) rates. Beef exports to Canada would face a tariff of more than 24%, which would slash or even eliminate trade, said the Purdue economists. For exports to Mexico, “a number of MFN rates are likely to be prohibitive,” such as 71% on pork and poultry products and 31% on dairy. The U.S. would impose duties, too, such as 9% on sugar and 8.5% on beef from Canada, and 17% on dairy products from Mexico, as well as nearly 10% on Mexican beef.