How a USMCA passage would affect Iowan ag markets
As President Donald Trump continues to make a push for his post-North American Free Trade Agreement (NAFTA) trade vision, if ratified, the United States-Mexico-Canada Agreement (USMCA) could possibly alleviate concerns Iowan manufacturers and farmers dealing with tariffs that have been imposed from the United States trade war with China.
“The changes under NAFTA were very large, because NAFTA truly changed a lot of the rules that mattered for Iowa industries in trading with Canada and Mexico,” said Chad Hart, associate professor of economics and crop markets specialist at Iowa State University. “USMCA is basically maintaining what NAFTA did. From an Iowa perspective, it doesn’t do all that much, but it preserves what we got — because when you’re affected by the trade war with China, you want to keep your two biggest trade partners with you.”
In particular, Mexico is the number one importer in the U.S. corn market, and a top-three importer in the soybean market. Both Mexico and Canada are top-five import-exports in pork and beef market, according to Hart.
“Before NAFTA, they were very small trading partners,” Hart said. “Now, they are massive for us. It’s a key relationship to keep, especially in a key point in time when you are fighting battles on the trade front.”
Iowa’s agricultural market has been caught in the crosshairs of the U.S.-China trade war. When Chinese officials enforced retaliatory tariffs in response to the U.S. imposing tariffs on more than 800 Chinese products on July 2018, Iowa’s corn and soybean markets were hit hard.
According to the American Soybean Association, soybean farmers, whose crop represents 41 percent of the value of products on China’s tariff list, have seen U.S. soybean price drop more than $2 per bushel.
Soybean growers rely heavily on exports to China. In 2017, China imported 31 percent of U.S. soybeans, equal to 60 percent of total U.S soybean exports and nearly one in every three rows of harvested beans, according to Farm Progress.
Experts estimate that Iowa soybean farmers stand to lose up to $624 million due to higher tariffs implemented by China.
“With China, the U.S. is in a fight, so having deals like the USCMA solidified that relationship with Canada and Mexico. It also encourages the U.S. to go and seek other trade partners like Japan, the United Kingdom, to help offset what you’re losing in a trade war in China,” Hart said.
As for corn, about one-fourth of U.S. exports go to Mexico and some feel that a passage of USMCA would eliminate tensions from grain producers who are concerned Trump’s threat of new tariffs on Mexican imports to stop illegal immigration will backfire.
If USMCA is not approved, United States farmers risk losing $9.4 billion in total agricultural exports annually, according to the Institute of Agriculture and Trade Policy.
Of that total, $1.8 billion comes from the cattle industry and $3.2 billion is from corn and corn byproducts.
Other industries, such as beef, will see a growth in production and workforce with the USMCA passage, Hart said.
Canada and Mexico are two of the U.S. beef industry’s top 5 most important trading partners, and according to the Iowa Cattleman’s Association, trade with Canada and Mexico adds $70 to the value of each head of cattle in Iowa.
“So unlike pork and soybeans or some of Iowa’s other ag products, we didn’t see a big market decrease because of the trade war with China. But we definitely lost an opportunity to grow in that market,” said Katie Olthoff, spokeswoman for the state cattleman’s group. “If we were to lose NAFTA, or not see a ratification of USMCA, that would be a big hit towards cattle producers, and it’s important to realize that, that what we’re exporting to Canada and Mexico doesn’t take away from the food supply in the U.S.”
Any hope for a passage of USCMA lies at the feet of the Democratic party who took control of the House this year. Democrats are asking for stricter enforcement provisions — especially for new labor rules aimed at Mexico, as well as stronger environmental protections.
“You always hear stories of the family farm being consolidated, or a loss of first-hand involvement in agriculture, and the effect of trade will either slow (trends) down or speed it up,” Hart said. “These will continue, and what trade wars do is accelerate the process and the strain on farmers in highly-volatile price times or situations where they need to drive their costs low.”
With reports that the White House will send USCMA to the U.S. House in September, a vote on the agreement could be scheduled by late December.