The United States exported more than $12 billion of agricultural products to Mexico in 2016. This included approximately 10 percent of all pork production and 5 percent of poultry and beef production. Dairy product exports exceeded $1 billion, and corn, soybeans, and wheat exports reached $5 billion. While Mexico is known for its exports of fruits and vegetables, U.S. exports of such products to Mexico reached $1.3 billion. These exports have grown rapidly because of free trade between the United States and Mexico and, until recently, were expected to continue growing.
U.S. agriculture expanded its production because the North American Free Trade Agreement (NAFTA) gave it a competitive advantage. Should the United States withdraw from the NAFTA, though, after a six-month delay, Mexico likely will impose duties of 20 percent or greater on agricultural imports from the United States. It will use this time to expedite the policies and business relationships that will allow it to source alternative supplies from countries such as Argentina, Brazil, Canada, and the European Union. Given the worldwide abundance of agricultural commodities, these countries will be more than happy to oblige.
In a commodity market where pennies per pound matter, the United States cannot compete if it is burdened with a duty of 20 percent. These duties will destroy our competitive advantage and in the long run encourage production in Mexico and in other countries with which the United States competes. For these commodities, a drop to only 15 percent in exports to Mexico would have a sharp impact on prices in the Chicago markets for U.S. farmers.
U.S. agriculture, particularly value-added agriculture, will be forced to downsize. This will be a painful process. In a careful study using a well-accepted economic model, ImpactECON – a Boulder, Colo., economic consulting firm – recently estimated that net job losses in U.S. agriculture would exceed 50,000 full-time positions.
Agriculture has had its difficulties in the past, but this event would be different. First, it would hit many markets at once. Counties and states that already are struggling because of low corn and soybean prices also would be hit by simultaneous losses in pork, dairy, poultry, and beef. Producers of products such as apples, pears, potatoes, almonds, walnuts, pecans, grapes and wine (to name a few), also would be harmed and likely would move some of their production to Mexico. The financial shock to American agriculture also would be different because it would be self-imposed and entirely predictable.
About the Author: Dermot Hayes has a Ph.D. in Agricultural Economics. He received his doctorate from UC Berkeley.