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USMCA or the new NAFTA United States Mexico Canada agreement symbol with north america flags as a trade deal negotiation and economic deal fot the American Mexican and Canadian governments as a 3D illustration. wildpixel/iStock/GettyImagesPlus

USMCA path cleared as Section 232 tariffs removed

Ag industry welcomes agreement with Mexico and Canada to see steel and aluminum tariffs come down in 48 hours.

The U.S., Canada and Mexico reached an agreement on Friday to lift President Donald Trump's Section 232 tariffs on aluminum and steel imports, paving a clearer pathway for the ratification of the U.S.-Mexico-Canada Agreement (USMCA). It also means the removal of harmful retaliatory tariffs that have hurt many agriculture sectors, including pork and dairy.

This agreement will completely remove the tariffs on Canadian and Mexican steel and aluminum within 48 hours and will not impose quotas in their place. These tariffs were a major roadblock for all three nations, and this agreement signifies progress made by all sides.

Trade with Canada and Mexico supports more than 12 million American jobs in every state in the country. For food and agriculture, Canada and Mexico are the two top markets, buying American grains, dairy products, meats, fresh fruits and vegetables. Nearly one-third of U.S. agricultural exports, valued at approximately $40 billion, go to these North American neighbors, supporting more than 300,000 American jobs.

Senate Finance Committee chairman Chuck Grassley (R., Iowa) said the action lifts the biggest hurdle to ratifying USMCA. "This is great news for farmers across the country. Iowa pork, soybean and corn farmers can breathe a sigh of relief that they will once again be able to sell their products in Canada and Mexico on a level playing field," Grassley said. 

"I’m optimistic that this renewed sense of momentum will carry USMCA across the finish line," Grassley added. 

Dairy

Last July, Mexico imposed a 25% tariff on U.S. cheese exports in retaliation to Section 232 tariffs the U.S. imposed on Mexican aluminum and steel imports.

“In addition to removing the existing retaliatory tariffs, it also prevents future retaliatory tariffs on U.S. food and agricultural products,” said Michael Dykes, president and chief executive officer of the International Dairy Foods Assn.

Tom Vilsack, president and CEO of the U.S. Dairy Export Council (USDEC), added, “If Mexico lifts its tariffs on U.S. dairy in response, it would be a welcome return to normalcy with our number-one export market. It would also build vital momentum for swiftly advancing USMCA towards passage.”

Mexico is, by far, America’s biggest dairy customer, with $1.4 billion in sales last year. U.S. products accounted for 80% of Mexican dairy imports by value in 2018, but that dominant market share was being jeopardized by the retaliatory tariffs.

The tariffs were, likewise, making it politically difficult for Congress to pass USMCA – a pact that modernizes the North American Free Trade Agreement, maintains U.S. dairy sales into Mexico, expands dairy market access in Canada and reforms many non-tariff barriers.

Pork impact

National Pork Producers Council (NPPC) president and Lillington, N.C., pork producer David Herring said, "We thank the Administration for ending a trade dispute that has placed enormous financial strain on American pork producers. Mexico's 20% retaliatory tariff on U.S. pork has cost our producers $12 per animal, or $1.5 billion on an annualized, industry-wide basis. Removing the metal tariffs restores zero-tariff trade to U.S. pork's largest export market and allows NPPC to focus more resources on working toward ratification of the U.S.-Mexico-Canada Agreement, which preserves zero-tariff trade for U.S. pork in North America."

Last year, Canada and Mexico took more than 40% of the pork exported from the U.S. U.S. pork exports to Mexico and Canada support 16,000 U.S. jobs. NPPC has designated USMCA ratification as a "key vote" and will closely monitor support of the agreement among members of Congress.

Wheat groups pleased

USMCA includes important provisions for wheat farmers. USMCA retains tariff-free access to imported U.S. wheat for longtime flour milling customers in Mexico -- a crucial step toward rebuilding trust in U.S. wheat as a reliable supplier in this important neighboring market, industry groups said.

In addition, USMCA makes important progress towards more open commerce for U.S. wheat farmers near the border with Canada. The updated agreement would enable U.S. varieties registered in Canada to be afforded reciprocal treatment. “While there are remaining challenges, we applaud the Administration for negotiating this critical provision in the USMCA and taking a big step towards reciprocal trade along the U.S.-Canadian border,” wheat growers said in a joint news release.

“Leaders in Congress made it clear that the USMCA ... would never be approved unless the tariffs on Mexican and Canadian steel and aluminum were removed,” said National Association of Wheat Growers president Ben Scholz, a wheat farmer from Lavon, Texas. “We want to remind members of Congress that the farmers in their states and districts expect support for this agreement. We are certain USMCA will bring jobs and economic prosperity to rural America and across the United States.”

Avoiding future disputes

Vilsack and National Milk Producers Federation (NMPF) president Jim Mulhern stressed the importance of finding similar common ground with China, which also slapped retaliatory tariffs on U.S. dairy exporters in 2018 and recently upped the ante by hiking them further on some products. As a result of last year’s move by China, U.S. exports to that fast-growing dairy market fell by more than 40% in the first quarter of 2019 compared to the same period last year.

NMPF and USDEC have consistently advocated for the urgency of resolving both the Section 232 and China trade disputes to allow dairy exporters to compete effectively in those markets, a statement from NMPF and USDEC explained.

Trump also announced Friday, pursuant to Section 232 of the Trade Expansion Act of 1962, to delay tariffs on imports of automobiles and certain automobile parts. 

“I’m glad President Trump decided to delay these tariffs. As the President knows, I’m not a fan of tariffs, and I have serious questions about the legitimacy of using national security as a basis to impose tariffs on cars and car parts,” Grassley said.

U.S. Wheat Associates chairman Chris Kolstad, a wheat farmer from Ledger, Mont., also encouraged the Administration to repeal all remaining steel and aluminum tariffs and oppose new tariffs on autos under Section 232. “New tariffs would encourage our trading partners to retaliate against U.S. farmers and agricultural exports and further weaken international trade rules,” he said.

Grassley noted, "As negotiations continue with China and others, ratification of USMCA will show that the United States can be trusted to follow through on its commitments. It’s up to China to show that it can do the same.”

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