Economic Tidbits

U.S., Mexico, Canada Agreement & Agriculture

Passage of the U.S., Mexico, Canada Agreement (USMCA) negotiated between the three countries last year is a top policy priority for U.S. agriculture in 2019. The agreement continues most of the NAFTA provisions relating to agriculture, but also adds new provisions to provide greater market opportunities for dairy and poultry and address non-tariff disruptions in trade between the three countries. Last year, a Purdue University study commissioned by the Farm Foundation examined the benefits to U.S. agriculture under different scenarios related to USMCA and the retaliatory tariffs currently in effect. A summary of the study noted:

“First, it compares NAFTA with USMCA ignoring other trade policy changes that have been made. That analysis predicts a $454 million increase in U.S. net agricultural exports to Canada and Mexico concentrated in the dairy and poultry sectors. The second perspective adds the steel and aluminum tariffs the U.S. imposed on Canada and Mexico and the retaliatory tariffs imposed by Canada and Mexico. That analysis shows a net loss in U.S. agricultural exports of $1.8 billion. The third case includes all the other new U.S. tariffs and the retaliatory tariffs of other countries such as China. For this case, the loss in U.S. agricultural exports is about $7.9 billion. The conclusion from the final case is compiled from another study and represents an estimation of what would happen if NAFTA were to go away; e.g., Congress does not approve the USMCA and the President withdraws from NAFTA. The assumption is that tariffs in all three NAFTA countries would revert to most favored nation (MFN) status. The U.S. agricultural export loss in this case amounts to about $9.4 billion. would revert to most favored nation (MFN) status. The U.S. agricultural export loss in this case amounts to about $9.4 billion.”

The chart below summarizes the findings for the scenarios noted above. Clearly the most favorable outcome for U.S. agriculture is Congressional approval of USMCA along with the removal all retaliatory tariffs now applied against U.S. agricultural exports. The findings also show that without the removal of the retaliatory tariffs, even with the passage of USMCA, U.S. agriculture comes out worse off relative to a world with NAFTA as it existed a year ago. The worst outcome for U.S. agriculture would be the U.S. withdrawal from NAFTA with nothing to replace it. The study affirms why U.S. agriculture has made passage of USMCA a top priority. It also demonstrates why the ongoing retaliatory tariffs on U.S. agricultural products are harmful. Hopefully 2019 will see both passage of USMCA along with the removal of the tariffs.  

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