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Inside Washington
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Trump’s Mexico tariff threat could blow up USMCA progress

Corn and pork producers could get hit most if Mexico trade war ratchets up.

Those in the agricultural industry are again calling for President Donald Trump to reconsider heightening a trade war with our No. 2 customer – Mexico – especially in conjunction what appeared to be momentum on securing approval in Congress of the U.S.-Mexico-Canada Agreement (USMCA).  

President Donald Trump said on Thursday he would impose a 5% tariff on all goods from Mexico until its leaders took unspecified steps to curb illegal immigration to the United States.

He warned that the tax “would gradually increase until the illegal immigration problem is remedied at which time the tariff will be removed.” The tariffs could rise as high as 25% on Oct. 1, Trump said in a statement released by the White House.

Ian Sheldon, agricultural trade economist at Ohio State University, shared, “Trade policy being targeted at absolutely nothing to do with trade doesn’t make any sense as an economist.” He added, “The idea that we’re going to slap a tariff on them to protect our southern border, and they would close their southern border is asking an awful lot of what is still a developing economy with corrupt politicians and police force.”

Advancing USMCA

Senate Finance Committee Chairman Chuck Grassley (R., Iowa) criticized the president’s actions. “Trade policy and border security are separate issues. This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump’s and what could be a big victory for the country.”

National Milk Producers Federation president and chief executive officer Jim Mulhern said Grassley is right: "Border security issues are border security issues, and trade issues are trade issues. New tariffs against Mexico are unlikely to secure the border, but judging from reaction on Capitol Hill, they may very well jeopardize the chances of passing the USMCA, a key White House priority and one that’s crucial for future agricultural prosperity." 

Ironically, the same day President Trump made the tariff threat, the U.S. Trade Representative also sent up to Capitol Hill its draft Statement of Administration Action. The SAA begins a 30-day period after which the administration may submit implementing legislation for the USMCA to be considered by Congress, and represents an important step toward a vote on the agreement.

Also on Thursday, Vice President Mike Pence was in Canada alongside Canadian Prime Minister Justin Trudeau touting the benefits of USMCA and solidifying the Administration’s commitment to help shepherd the bill for ratification by Congress yet this summer.

“If we don’t ratify this agreement [USMCA], it’s going to be terrible for trade relationships globally, whether it’s China, Japan, anywhere, Mexico, Canada. We’ve got to ratify the USMCA agreement,” said Secretary of Agriculture Sonny Perdue while he was in Pennsylvania touring farms on Thursday.

The Guardian reported that in response to the threat to Mexico, in Beijing, the foreign ministry spokesman, Geng Shuang, said: “The United States has repeatedly taken trade bullying action. China is not the only victim.”

Sheldon noted that Trump has typically used the bilateral bargaining push of avoiding tariffs with whoever we run a trade deficit with including Japan, EU, and China.

The question becomes, “Why would you negotiate with a bully?” Sheldon asks, adding that the shift away from a rules-based to power-based trading system. Previously the World Trade Organization dispute settlement process was designed to stop trade skirmishes extending beyond other industries.  

Tariff impact

Sheldon explained that if these tariffs ratchet up to 25% for U.S. farmers it could be “really bad” for corn exports to Mexico as well as processed pork. Many processing value chains throughout North America in the agricultural value sector would see negative impacts. Beef markets are also highly integrated across the Mexico and U.S. southern border. If tariffs reach 25%, consumers would see noticeably higher prices on fruits and vegetable prices.

Mexico was the top market for U.S. corn in 2017/2018, with corn and corn product exports valued at $3.3 billion. Corn exports to Mexico reached a record high of 15.7 million tons (618 million bushels), up nearly 13 percent from 2016/2017. Mexico was also the top buyer of U.S. distiller’s dried grains with solubles (DDGS), purchasing 2.13 million tons in 2017/2018 – up 3% year-over-year.

National Corn Growers Assn. (NCGA) president Lynn Chrisp strongly urged the President to rethink applying new tariffs to Mexican goods and to reconsider using tariffs to address non-trade issues.

“The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for USCMA but new tariffs threaten to reverse that progress. Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring,” Chrisp said.

David Herring, president of the National Pork Producers Council and a pork producer from Lillington, North Carolina, said in a statement he hoped Trump would reconsider. Over the last year, trade disputes with Mexico and China have cost hard-working U.S. pork producers and their families approximately $2.5 billion, he said.  

For most of the last year, U.S. pork producers have lost $12 per hog due to trade retaliation by Mexico, which was lifted last week, according to Iowa State University Economist Dermot Hayes. Dr. Hayes projects that the U.S. pork producers will lose the entire Mexican market, one that represented 20% of total U.S. pork exports last year, if they face protracted retaliation. As of April 1, 2019, the value of U.S. pork exports to Mexico were down 28% from the same period last year. 

NMPF estimates that producers have lost at least $2.3 billion in revenues through March due to higher tariffs against U.S. dairy, which has lowered milk prices for all producers.

For wheat producers, they too feel like they cannot continue to weather the impacts of the Administration’s trade policy.  In 2018, Mexico increased its total wheat imports significantly, but U.S. wheat imports actually declined that year. 

“With progress on the USMCA — most recently cancellation of the steel and aluminum tariffs — our customers in Mexico have been importing more U.S. wheat,” Chris Kolstad, chairman of US Wheat Associates and a wheat farmer from Ledger, Mont. “In a very disheartening coincidence, our organization is holding a conference next week with our Mexican customers partly to remind them how important they are to us. Of course, the cost of the conference is funded by the Agricultural Trade Promotion program that was awarded because U.S. wheat farmers proved they were being hurt by retaliatory tariffs.”

“We’ve been hit by low prices; we’ve been hit by rain and flooding that is hurting what was an excellent wheat crop; and now we’ve been hit again by the actions of our own government. We need to end indiscriminate use of tariffs now, one way or another," said Ben Scholz, president of the National Assn. of Wheat Growers and a wheat farmer from Lavon, Tex.

Tariffs Hurt the Heartland, the national campaign comprised of over 150 of America’s largest trade organizations from across retail, tech, manufacturing and agriculture, warned in a statement using tariffs to address unrelated policy objectives sets a dangerous precedent while creating significant uncertainty for American employers who are living tweet-by-tweet while trying to plan their business.  

“These tariffs will likely invite retaliation on the products we export to Mexico including agriculture, electronics, engines, car parts and more. Our farmers, who were closing in on a desperately needed win on updating access to North American markets, will instead now be faced with more uncertainty and new trade barriers," the coalition said. According to Trade Partnership, tariffs on imports from Mexico could lead to $25 billion in higher costs for American consumers.

TAGS: Policy
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