Around 98% of the corn that Mexicans use to make tortillas and other staples of their diet comes from the US. Around 98% of the corn that Mexicans use to make tortillas and other staples of their diet comes from the US. Daniel Aguilar/Reuters

Reshaping NAFTA could be good for MX

Donald Trump's trade stand may end up hurting US agriculture

Among other threats targeting Mexico during his election campaign, U.S. President Donald Trump harshly criticized the North American Free Trade Agreement (NAFTA), a 23-year-old tripartite deal that removed tariffs and significantly increased commerce between Canada, the United States and Mexico.

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Renegotiation of the deal is likely to start late this year.

As Trump has pointed out, NAFTA contributed to a U.S. trade deficit with Mexico reaching US$63.2 billion last year. This is the country’s fourth-largest trade deficit, after China, Japan and Germany. America’s deficit with the other NAFTA nation, Canada, was slightly over US $11 billion in 2016.

But that’s only part of the story. Remove cars and auto part imports, for example, and the U.S. deficit with Mexico virtually disappears.

Overall, NAFTA has been beneficial to Mexico, Canada and the U.S. alike. Since it was signed in 1994, foreign direct investments (FDI) in Mexico have averaged 2.6% of GDP (compared to 1% for two decades before NAFTA). At present, annual bilateral trade between the U.S. and Mexico is running at $580 billion.

Much of Trump’s outdated protectionist rhetoric hinges on manufacturing, outsourcing of jobs to Mexico and immigration. Agriculture – a key link between the two nations – does not seem to have entered his calculations.

Globalization may have contributed to manufacturing job losses in the U.S., but it has had significant benefits for the American agricultural sector. U.S. exports of agricultural products to Mexico have increased nearly fivefold since NAFTA was signed.

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For the 2014-15 crop marketing year, U.S. corn production was 360 million tonnes, 13% of which was exported. Mexico accounted for 23% of these exports.

In 2016, Mexico imported $17.9 billion in American agricultural products: $2.6 billion in corn, $1.5 billion in soybeans, $1.3 billion in pork and $1.2 billion in dairy products.

Around 98% of the corn that forms a staple of the Mexican diet comes from the U.S. Mexico also buys 7.8% of all U.S. pork production.

What has been good for U.S. farmers has actually hurt Mexican agriculture. Lulled by a steady supply of cheap U.S. farm products and low transportation costs, and assuming that the good times will continue, Mexico has not diversified its agricultural imports. It depends heavily on U.S. farmers to feed its people, endangering Mexico’s long-term food security.

The U.S. is the world’s top exporter of agricultural products, but there are other global breadbaskets, including Brazil, Australia, Russia, Argentina and Ukraine. As these rivals have adopted more modern farming and agricultural practices and improved their transport and product-handling infrastructure in recent years, America’s global export share has been steadily declining.

Political decisions have at times accelerated this decline. In 1979, the U.S. banned grain sales to the then-Soviet Union because of its invasion of Afghanistan. This forced the U.S.S.R. to improve its own grain production, and, in 2016, Russia surpassed the U.S. for the first time in wheat exports.

Might Donald Trump’s administration be facing a similar watershed moment for American agriculture?

As America threatens to close its agricultural export door, it has damaged Mexico’s confidence in the reliability of its major supplier – perhaps permanently. In a January 2017 Washington Post opinion piece, former Mexican president Ernesto Zedillo wrote that it was a “waste of time” to play “NAFTA tweaking games with the Trump administration.”

Though Mexico currently has free trade agreements with 45 countries (more than any other country in the world), agriculture has consistently been the most sensitive issue in Mexico’s free trade agreements. Trump has changed that.

Today, the country is accelerating its search for new partners to meet its national agricultural needs. Sensing long-term opportunities, Brazil and Argentina – both major exporters of beef, wheat, soybeans and other prized U.S. agricultural products – are elbowing their way to the front of the queue. Neither currently has a free trade agreement with Mexico.

Mexico’s Economy Undersecretary, Juan Carlos Baker, has said that the country is “pretty far advanced with Brazil. Argentina is a few steps behind,” confirming that Mexico could offer South American producers terms similar to those currently enjoyed by American farmers “if it suits us.”

As Brazil’s Agriculture Minister Blairo Maggi has announced, that the country is “back in the game.”

Mexico is also discussing bilateral deals with Australia and New Zealand, two other main food-exporting countries.

In addition to government-to-government agreements, companies that produce and trade agricultural products are also seeing Mexico’s vast import market with new eyes. One of them is Adecoagro, which owns and leases some 434,000 hectares of farmlands in Brazil, Argentina and Uruguay and harvests two million tons of agricultural products annually.

The New York-traded Buenos Aires-based firm, whose major shareholders include the Hungarian-American investor George Soros, the Dutch Pension Fund PGGM and the Qatar Investment Authority, currently exports agricultural products such as corn, wheat, soybean and cotton to Africa, Asia and Middle East.

It sees NAFTA-related uncertainties as an opportunity to penetrate the Mexican market, especially if Brazilian and Argentinian products are granted favorable U.S.-style export arrangements.

In addition to diversifying its trading partners, Mexico is also seeking to stimulate its domestic agricultural production, according to several government officials and advisers.

New policies currently under consideration would incentivize farmers to produce more, modernize their farms, increase crop yields and expand cultivable areas. The country is also looking to improve its transportation and storage infrastructure, including ports that could be used for bulk grain imports.

All of these efforts will help put Mexico on more equal footing with the United States in future NAFTA negotiations. So, too, would retaliatory measures against a threatened U.S. border tax. (And, anyway, if the U.S. does decide to implement one, the market is likely to sell off Mexican pesos aggressively, making Mexican products cheaper even with new tariffs.)

Like the 1979 U.S. grain ban that helped Russia improve its agriculture, Trump’s vituperation may prove beneficial to Mexico (and bad for the U.S.) in the decades to come.

In the meantime, Mexico is facing a tough political and social landscape. President Enrique Peña Nieto’s approval rating is nearing single digits and the the economy is performing anaemically, with 2017 economic growth predicted to be a paltry 1%.

With a presidential election approaching in 2018, Peña Nieto is unlikely to hard sell to his people a new NAFTA that does not appeal to Mexicans. So it would be good politics, too, to play hardball with Trump.

Mexico has more policy options than it thinks. And it may have less to lose than its northern neighbor.

If ending NAFTA hurts farmers in America’s Corn Belt, who voted overwhelmingly for Trump, there goes the Republican’s reelection.The Conversation

Cecilia Tortajada is a senior research fellow at Lee Kuan Yew School of Public Policy at the National University of SingaporeAsit Biswas, a distinguished visiting professor at Lee Kuan Yew School of Public Policy, contributed to the article, which was originally published on The Conversation.

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  • SickofLiberalbs9999

    Why in the world would Mexico use 98% US corn for the national tortilla diet – where’s Mexican corn?

    • jt53

      US corn is much cheaper even if it is of lower quality. Also much of the imported corn is used in large tortilla factories that have run the small players out of business. Many of the farmers who lost their livlihood due to subsidized US corn exports are the illegals you like to complain about.

  • Güerito

    Mexico doesn’t import from the US 98% of the corn it consumes.

    Mexico consumes about 35 million tons of corn a year. It produces about 23 million tons and imports from the US about 12 million tons. That’s about 35% imported from the US.

    I assume the reference to 98% is for the % of corn imports that come from the US.

  • Donnie W. Jennings

    It amazes me how they find people stupid enough to write articles like this! Or maybe I should say people this dishonest! The US “MAY” not be able to feed itself if it stops illegal immigration! The US “MAY” pay a heavy price if it levels the playing field as far as Free, but not Fair trade! The Republicans “MAY” lose the next election if Mexico does not buy (98%) of it corn from the US! 98%! I am waiting on the article explaining how the US “MAY” collapse upon itself if the Drug flow is stopped! Wow! Let me admit, I did not read all of the trash in this article, it was not necessary!

    • Donnie W. Jennings

      BTW, I do hope they reach a level that is more Fair than it has been, without hurting Mexico any more than necessary. I actually would like to see a situation where there are no current products are turned away or taxed from either country, but allows a more balanced trade in the future. Much of this is actually dependent on the US changing the Tax laws in the US that entice US as well as foreign companies not to produce in Mexico for US consumption. To be in control of its own destiny, Mexico must increase the income of its own people, so that they become their own customers. Of course, none of the folks in charge in Mexico have any real interest in accomplishing that!

      BTW, I need to buy a product in Mexico at this time. The product is not made in either Mexico or the US. My full price in the US would be $236 US, my full price in Mexico for the exact same imported product is $411 US. Much of that difference is Import Duty! It is also the reason the Chinese things in Walmart are 20 to 30% higher than the same Chinese products in US Walmarts. But, Mexico screams in fear at the idea of Import Duty for products going to the US from Mexico. I do not want an import duty on products going into the US from Mexico, I want the imbalance to be remedied through other means. But, the hypocrisy and dishonesty that is used in the propaganda generated in Mexico is ridicules.

      • Donnie W. Jennings

        One comment, that I forgot earlier. Mexico done nothing wrong to gain the advantage on this Trade Deal! I think the Deal has not worked out as many thought it would. That along with Corporate Tax rates in the US, is responsible for the un-levelness of the playing field. So, I have no complaint against Mexico, but I do think some things need to be changed!

  • J. M. Davis

    Mexico’s edjio farm system keeps farmers from modernizing faster. In this system the land is owned jointly each member has an undivided interest. In the USA the farmer owns the land and can use it for collateral when he finances new farm equipment. That isn’t possible in Mexico. So little new equipment arrives.

  • Güerito

    Here’s an alternative take on the effect of NAFTA on Mexico:

    ** Mexico ranks 18th of 20 Latin American countries in growth of real GDP per person, the
    most basic economic measure of living standards.

    ** From 1960-1980, Mexican real GDP per person almost doubled, growing by 98.7 percent.
    By comparison, in the past 20 years it has grown by just 18.6 percent.

    ** Mexico’s per capita GDP growth of just 18.6 percent over the past 20 years is about half of
    the rate of growth achieved by the rest of Latin America.

    ** If NAFTA had been successful in restoring Mexico’s pre-1980 growth rate – when
    developmentalist economic policies were the norm – Mexico today would be a relatively
    high income country, with income per person significantly higher than that of Portugal or
    Greece. It is unlikely that immigration reform would be a major political issue in the United
    States, since relatively few Mexicans would seek to cross the border.

    ** According to Mexican national statistics, Mexico’s poverty rate of 52.3 percent in 2012 is
    almost identical to the poverty rate of 1994. As a result, there were 14.3 million more
    Mexicans living below the poverty line as of 2012 (the latest data available) than in 1994.

    ** The rest of Latin America saw a drop in poverty that was more than two and
    a half times as much as that of Mexico: 20 percentage points (from 46 to 26 percent) for
    the rest of Latin America, versus 8 percentage points (from 45.1 to 37.1 percent) for Mexico.

    ** Real (inflation-adjusted) wages for Mexico were almost the same in 2012 as in 1994, up just
    2.3 percent over 18 years, and barely above their level of 1980.

    ** Unemployment in Mexico is 5.0 percent today, as compared to an average of 3.1 percent for
    1990-1994 and a low of 2.2 percent in 2000; these numbers seriously understate the true lack
    of jobs, but they show a significant deterioration in the labor market during the NAFTA
    years.

    ** NAFTA also had a severe impact on agricultural employment, as U.S. subsidized corn and
    other products wiped out family farmers in Mexico. From 1991-2007, there were 4.9 million
    Mexican family farmers displaced; while seasonal labor in agro-export industries increased by
    about 3 million. This meant a net loss of 1.9 million jobs.

    ** The very poor performance of the Mexican economy contributed to a surge in emigration to
    the United States. From 1994-2000, the annual number of Mexicans emigrating to the
    United States soared by 79 percent. The number of Mexican-born residents living in the
    United States more than doubled from 4.5 million in 1990 to 9.4 million in 2000, and peaked
    at 12.6 million in 2009.

    http://cepr.net/documents/nafta-20-years-2014-02.pdf

  • alance

    Oct 7, 2016 – The U.S. Department of Agriculture (USDA) spends $25 billion or more a year on subsidies for farm businesses. The particular amount each year depends on the market prices of crops and other factors. Most agricultural subsidies go to farmers of a handful of major crops, including wheat, corn, soybeans, rice, and cotton.

    How much does the Mexican government spend to subsidize agriculture?
    How many Mexican companies manufacture tractors?
    Is Mexico capable of feeding itself?

  • K. Chris C.

    Managed trade is just one piece of the Khazarians’ grift-machine being utilized to plunder both the American people and foreigners.

    To forestall the price-inflation from their fiat-money they manipulate interest and exchange rates, and manage trade. Managed trade is used to bludgeon the uncooperative in one or both countries.

    In reality, that “giant sucking sound” was the emptying of both American and foreigner pockets straight into the Khazarians’ Also why for more than 30 years a Khazarian has headed the grift-machine.

    An American citizen, not US subject.

  • Niagara_Dude

    No person really cares about corn, good paying jobs for both Canada and USA are in Automotive and manufacturing.

    NAFTA is about manufacturing jobs making some farmer who pays his workers min wage with no benefits

    • jt53

      The most powerful lobby in the Us is Agriculture. I can guarantee that they care about corn. With farm income falling due to higher costs (mainly chemicals due to GMO caused pest resistance), they are not going to give up that market without a huge fight.

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