Understandably, the President’s promised renegotiation of the North American Free Trade Agreement (NAFTA) has been overshadowed by continued tariff escalations with China–a controversial strategy that’s had significant consequences for American farmers.
But the new NAFTA, dubbed rather unimaginatively as the United States-Mexico-Canada Agreement (USMCA), contains provisions that could encourage farmers.
President Trump’s antipathy for the original NAFTA is well-known. On the campaign trail, he famously referred to the 1994 commercial treaty as “perhaps the worst trade deal ever made.”
What he meant was the mass migration of manufacturing and industrial jobs to countries that could undercut US wages and limit overhead costs. To Trump, that seemed too great a sacrifice for cheaper consumer goods and new export markets.
He kept this campaign promise, getting Mexico and Canada to the table to discuss renegotiation. After convening a G20 summit in Buenos Aires late in 2018, the three nations named in the agreement signed a non-binding agreement. Since then, only Mexico has ratified the treaty; legislators from Canada and the United States are mired in parliamentary negotiations.
Critics disagree about how much the USMCA changes NAFTA, and whether the revisions will benefit America.
Among the most salient changes are new labor provisions that strengthen country of origin standards and raise wages for autoworkers and intellectual property protections designed to crack down on piracy.
For the ag industry, more consequential changes might be on the horizon. American grain will now be graded and priced in the same way as domestic Canadian grain. Information sharing on new genetic and breeding technologies are promoted. So are more consistent international sanitary standards.
But the biggest news for farmers has been the opening of access to Canadian dairy markets. Long a bastion of protectionist tariffs and domestic regulation, Canada agreed to open up a small window on its market, raising quotas for untaxed dairy imports from the United States.
Economic forecasts of this move for American dairy are mixed.
On the one hand, it’s a strategic concession, opening the door to further market penetration. Canada has long limited its dairy production and placed high tariffs on imports to protect its producers. Even so, the US has managed to sell $675 million dairy annually to its northern neighbor. Dropping tariffs on some of these imports from the US will likely increase that number.
On the other hand, it’s a relatively modest window Canada opened to American dairy. Only about 3.6% of Canada’s free market is accessible; any imports exceeding this quota will be hit with taxes ranging from 200% – 300%. Economists estimate the economic impact at $70 billion. That’s not a negligible amount, but it’s still a fraction of the total available market.
It remains to be seen how much the new NAFTA — which President Trump immediately heralded as “a good deal for all of us” — will have significant impacts on agriculture. Certainly, there’s an immediate victory for American dairy farmers. Scientists should be cheered by the new opportunities for cooperation with their Mexican and Canadian peers. And better sanitary standards will help public health.
If ratified, USMCA could have a modest influence on agriculture. Whether it will be more than that will depend on what the constituent nations do within the new framework.