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U.S. ag forced to downsize if NAFTA withdrawn

U.S. Chamber of Commerce event features conversation about how to prevent trade policy from creating economic catastrophe in rural America.

When Humpty Dumpty -- to which the ongoing North American Free Trade Agreement (NAFTA) negotiations were compared -- falls off the wall, it is hard to put the pieces back together. The comparison was made several times Tuesday morning during a U.S. Chamber of Commerce discussion on “The Future of NAFTA: The Stakes for American Agriculture & Business.”

Sen. Pat Roberts (R., Kan.) made the comparison first last week after a private luncheon with Republican leaders, where President Donald Trump shared his NAFTA negotiation strategy. The President believes that, by issuing a notification of his intent to withdraw from NAFTA – which would trigger a six-month waiting period before the actual exit – he can force Mexico and Canada to make the concessions he wants.

Roberts told those at the Chamber event that he knows U.S. Trade Representative Bob Lighthizer and said he is a “good man” who “knows the value of agriculture,” but the path he may take is a “path fraught with a lot of dangers.”

“We are fighting a pervasive view that our economy has not benefited from NAFTA. We are coming to a crossroads, and the decisions made on international trade will determine the future economic success of our country,” Roberts said in a plea to those at the event.

“We must educate. Our message must be clear and consistent in every way. We must commit to challenge this view, set the record straight and explain what is at stake. These issues affect real jobs and real lives,” Roberts said.

The Administration has set a key negotiating objective to create more balanced trade deficits, while Canada and Mexico have rejected that objective. It has created a situation that could result in a financial catastrophe for the agriculture industry, which has seen overwhelmingly improved trade balances under NAFTA, according to Minnesota pork and crop farmer Randy Spronk, who also spoke as part of a panel at the event.

Spronk, a past president of the National Pork Producers Council, said there’s no way to sugarcoat the fact that terminating NAFTA would bring serious harm to U.S. agriculture and rural America and would send “shock waves across the globe.” He said the U.S. is already falling behind on negotiating free trade deals with other countries, and terminating NAFTA would doom U.S. prospects on new deals needed to keep U.S. agriculture competitive.

Iowa State University economist Dermot Hayes said he does not expect Mexico to make concessions in six months if forced to do so by a withdrawal from NAFTA. His research has found that many agriculture sectors, including pork, beef, dairy, corn and soybeans, would have to downsize production at a time when the agricultural economy is already in trouble.

Many of these segments exports 10-15% of domestic production to Mexico or Canada. Recent profit driven-expansion would now be forced to go through multiyear effects of loss-driven production decreases.

“The pain would be localized,” Hayes said, especially in “flyover country,” which has high production of eggs, corn, soybean, beef and dairy.

He said the 20% tariff on U.S. pork that would resume for Mexico would likely create a 15% increase in consumer pork prices in Mexico and force a 5% reduction in U.S. pork production. “That 15% increase stimulates Mexico to increase their production and causes their retailers to look at other countries for alternative sources,” Hayes said.

National Association of Wheat Growers president Gordon Stoner said he would propose that the discussion not focus on “doing no harm” but, rather, “doing no more harm.”

“We’ve already seen markets affected by rhetoric and posturing to date regarding NAFTA,” stated Stoner, a Montana wheat farmer. Mexico has already inked a deal to purchase 30,000 tons of wheat from Argentina.

“Rhetoric has made trading partners very anxious. They’re not going to be held hostage,” Stoner said.

In the wheat market, millers and bakers have to formulate recipes based on where their wheat is sourced. “Once they source another wheat, they’re very hesitant to tinker again with recipes. We are not only losing the sale today, but it is hard to get that sale back in the future,” Stoner explained.

He said 4-6 cents/bu. can determine who gets a sale. So, tariffs ranging from 5% to 40% can knock the U.S. out of the market immediately.

“The Administration tends to look at the deals like a real estate property, where you make a deal and move on to the next deal," Stoner said. "We’re dealing with sovereign nations and relationships that are built over years and decades. The current Administration is turning that on its head and trying to walk away from the NAFTA deal.”

The rest of the world is watching the U.S. and wondering whether to take us at our word, Stoner said, adding that these are “long-term decisions that will effect generations of farmers.”

Watch a webcast of the event here.

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