Farm Foundation assesses impact of USMCA trade agreement, seeing negatives

On Oct. 31, the Farm Foundation debuted an analysis of the U.S.-Mexico-Canada Agreement (USMCA) and its impact on the agricultural economy.

“As the landscape of global trade has changed in recent months, there have been a lot of questions about what it really means for U.S. agriculture,” said Constance Cullman, Farm Foundation president. “We commissioned from Purdue University Center for Global Trade analysis what the impact of retaliatory tariffs in USMCA will have on U.S. ag.” 

Dominique van der Mensbrugghe, the director of the Center for Global Trade Analysis at Purdue University, was the lead author of the report, titled How U.S. Agriculture will Fare Under the USMCA and Retaliatory Tariffs. Van der Mensbrugghe partnered with Wallace Tyner, Ph.D. and Maksym Chepeliev, Ph.D. in writing the report.

Overview

“I think we can all be grateful that USMCA was agreed to,” van der Mensbrugghe said. “We will see if it will be ratified. It certainly consolidated significant gains from the North American Free Trade Agreement (NAFTA).”

Looking back, van der Mensbrugghe says the U.S. has been on a path towards markets that are increasingly open since World War II.  

“Today, Canada and Mexico are some of the top exporting markets for U.S. agriculture, and the share has increased from 13-plus percent to more than 30 percent,” he described. “We’ve seen more than a doubling since the NAFTA.” 

Mexico’s share in the U.S. market has also increased, from 11 to 18 percent, and Canada’s market share has stayed moderately steady over time.

“These are two very important markets for U.S. farmers, accounting for roughly one-third of U.S. exports,” he commented.

Inside the agreement.

Firstly, the USMCA agreement consolidates the first NAFTA agreement, with some exceptions. 

“There have been some market access changes, most notably in the auto sector, which will have implications in terms of the supply chain and other things,” van der Mensbrugghe explained. “Perhaps even more significant is 45 percent of parts must come from factories where workers earn $16 or more an hour, which will cost us.” 

In the agriculture sector, the most significant impacts have include the expansion of import quotas in Canada for U.S. dairy and poultry products. 

“There are a lot of other changes in the agreement, which is over 1,800 pages long,” he said. 

Some who have analyzed the agreement called USMCA a renovation in NAFTA that addresses modernization in markets that have occurred since the 1970s.

Dairy and poultry

After looking at industries in-depth, van der Mensbrugghe said increased market access in dairy will lead to a 106 percent increase in export of dairy products from the U.S.

Under NAFTA, the total quota for fluid milk was roughly 65,000 metric tons, a rather small amount, and actual exports was about 55,000. A five percent increase in dairy product exports is expected. 

Other meat product exports will increase by 1.6 percent.

“That’s a small number as a percentage of U.S. dairy exports,” he explained. “In terms of other sectors, we have a 12 percent increase for poultry and pigs.” 

van der Mensbrugghe said, converted to dollars, the impact is $450 million, which is “not a huge amount given the size of the U.S. economy or even U.S. agriculture, but for dairy producers it is something.”

At the same time, given the size of the agreement, “We see very small impacts on the farm economy,” van der Mensbrugghe mentioned. “We also get a little bit of improvement in prices.” 

Retaliation

“But that’s not the end of the story,” van der Mensbrugghe said. “USMCA is good, and it consolidates NAFTA and improves things for dairy and poultry producers.” 

While an increase in market access is predicted, van der Mensbrugghe adds, however that retaliatory measures from the USMCA countries “will cause U.S. agricultural exports to decline by $1.8 billion.”

Retaliatory tariffs have been imposed to combat aluminum and steel products. 

“Countries around the world are not targeting U.S. steel or aluminum, they’re targeting products that are sensitive, like agriculture products,” he said. “They’re going after more sensitive products hoping that the United States feel some political pain.” 

Estimates of retaliatory measures from Iowa State University were used as the basis for the Purdue estimates. 

“Canada has imposed tariffs of roughly two percent on poultry and pig products, four percent on sugar and 3.5 on average for other food products, which is a really big category,” he said. “Mexico has been a big more aggressive, with poultry and pigs, 10 percent, fruits and vegetables at four percent and 3.5 percent on other food.”

Export numbers decline by about $1.8 billion, which “largely negates whatever gains would come out of USMCA.”

Bigger pictures

“We looked at all retaliatory measures in another simulation, not just ones focused on Canadian and Mexican agriculture, but all from all products,” van der Mensbrugghe said. “The total decline in agriculture and food exports is $8 billion.”

Much of the impact is seen in oilseeds, including soybeans, poultry and pigs, as well as other foods, take a hit from the impact. 

“If we look at the farm income impacts, we see a loss of 45,000 jobs in the food and agriculture sector,” he said. “We’re not sure if it would show up in U.S. labor statistics, but that’s quite a number of jobs.”

Land prices, particularly for those producing soybeans, would decline approximately 18 percent. 

“This is not good news for farmers,” van der Mensbrugghe commented.

Saige Albert is managing editor of the Wyoming Livestock Roundup. Send comments on this article to saige@wylr.net.