WASHINGTON, April 19, 2017- President Donald Trump renewed his threats to the North American Free Trade Agreement Tuesday, promising that he might “get rid of it.” The comments, in a speech in Kenosha, Wis., were applauded by some dairy farmers who have suffered under Canadian trade barriers, but Trump’s aggressive stance on the three-country trade pact will also heighten the U.S. farming sector’s fears that exports to Mexico are threatened.
Trump’s NAFTA comments, at the headquarters of toolmaker Snap-on Inc., were at least partially directed at Canada and the country’s efforts to block U.S. dairy exports, but he also targeted Mexico.
“The fact is, NAFTA has been a disaster for the United States – a complete and total disaster,” Trump said in Wisconsin, a state where dairy farms have been hurt by a new Canadian dairy policy. “NAFTA has been very, very bad for our country. It’s been very, very bad for our companies and for our workers, and we’re going to make some very big changes or we are going to get rid of NAFTA for once and for all. Cannot continue like this, believe me.”
Canada’s dairy producers have expanded efforts to block U.S. exports by creating new marketing categories in the country’s National Ingredients Strategy that undercut U.S. prices. The new “Class 7” policy is effectively blocking some shipments of ultra-filtered milk used to make cheese. On Tuesday, Canadian Ambassador David MacNaughton said in a letter to the governors of Wisconsin and New York that U.S. overproduction, rather than policy changes are to blame. “Canada does not accept the contention that Canada’s dairy policies are the cause of financial loss for dairy farmers in the United States,” MacNaughton said and attached a USDA dairy outlook report that “clearly indicates the poor results in the U.S. sector are due U.S. and global overproduction.
But Trump said in his speech, “What's happened to you is very, very unfair,” describing Canada’s actions as “another typical one-sided deal against the United States. And it's not going to be happening for long.” But a dissolution of the U.S.-Mexico-Canada pact would cause massive losses of exports – including dairy sales – to Mexico.
NAFTA has been the opposite of a disaster for agricultural exports when it comes to trade with Mexico. Tariffs on most U.S. farm commodities have fallen to zero under the trade pact, pushing U.S. exports to record levels. The U.S. exported about $5 billion worth of farm products to Mexico in 1994, the year NAFTA was implemented. This year the USDA is predicting that the U.S. will sell about $18.3 billion worth of pork, corn, wheat, rice, dairy, beef, sorghum and other commodities to Mexico.
“I think there’s a way where NAFTA can be modernized,” Nick Giordano, vice president and counsel for global government affairs for the National Pork Producers Council, said in a recent briefing. “We’re not opposed to that. Our position is we simply can’t go backwards here. We’re dependent on that market. If we have a disruption, it’s going to be financially devastating to producers.”
The major farm groups have all pledged to work with the Trump administration because a NAFTA renegotiation seems unstoppable, but it’s still scary. Mexico is a top destination for U.S. wheat, dairy, corn, soybeans, pork, beef and rice. All of those commodities and others are being sold to Canada duty-free because of NAFTA, so any change in the trade pact is worrying.
“What we don’t want to become is a casualty of a trade war, and that’s the real risk to us,” said USA Rice Federation spokesman Michael Klein. The U.S. exported $273 million worth of rice to Mexico last year.
The first concrete sign of what the Trump administration is planning for the renegotiation came in March when a draft letter from the acting U.S. Trade Representative to House and Senate leaders was leaked to the press.
Under the “Trade Remedies” section of the eight-page letter is a proposal for a “safeguard mechanism” on trade that would allow the U.S. to revoke tariff preferences for either Mexico or Canada, and that sounded alarm bells for some in the agriculture sector.
“We don’t want to reopen tariffs,” Giordano said. “That’s a Pandora’s box. When we start talking about things like safeguards, we’ve got to be very careful.”
Giordano said he recognized the desire to protect import-sensitive industries in the U.S. from Mexican goods, but stressed that efforts to shield them could spur Mexico to protect its farmers from imports of U.S. farm commodities. “I can tell you that the position of pork producers in Mexico is to go back to tariffs that were in place before NAFTA,” Giordano said. “Clearly we don’t want to do that. We don’t want any disruption in our trade to Mexico because that’s going to directly impact in a very serious and negative way the bottom line of our producers.”
That threat is very real, agreed Bob Stallman, former president of the American Farm Bureau Federation. “If you do that unilaterally,” Stallman said about the proposed safeguard mechanism, “without it being part of a framework, then that’s where you’re going to get into trouble pretty quickly with respect to the Mexican’s retaliating.” The U.S. and Mexico have formed complex bonds since NAFTA was implemented more than 20 years ago, Stallman said, but they can still be easily broken.
“There’s a whole chain there and if that’s disrupted, it’s going to come with a great economic cost,” he told Agri-Pulse in an interview. “If you do something to disrupt that and harm Mexico’s position, then … the Mexicans will be more than happy to retaliate against U.S. agricultural products.” None of that needs to happen though, Stallman stressed. Changes can be made to NAFTA while at the same time protecting agricultural trade.
“There’s nothing wrong with everyone sitting down and talking about how we can make this better,” he said. “That’s different than sitting down and saying we’re going to pull out of this agreement unless we get our way.”
Senate confirmation of Trump’s nominees to lead the USDA and USTR would go a long way towards easing the concerns of the farm sector, said USA Rice’s Klein. Both nominees – Sonny Perdue for USDA and Robert Lighthizer to be the next USTR - made comments during their confirmation hearings to reassure the farm community that they will protect agricultural exports. Perdue’s nomination is scheduled to get a Senate vote on Monday and he’s widely expected to be confirmed with bipartisan support. Lighthizer’s nomination still hasn’t been cleared at the committee level, though, because it’s been tangled up in an unrelated battle. Some Democratic senators are holding up the nomination by linking it to controversial legislation to save the pension and health care funds for thousands of out-of-work coal miners.