New Trade Agreement Provides More Security

By Janet Kehres

The United States-Mexico-Canada Agreement (USMCA) is the new trade deal with United States, Canada, and Mexico. While much of this new agreement has to do with the automotive industry, there are some sticking points in the agreement which will have an effect on agriculture.

The U.S. dairy industy has for many years produced a huge surplus of milk, to the point where dairy farmers have dumped millions of gallons of milk into the garbage.

The government has purchased huge quantities of surplus cheese from American farms. While the surplus has kept prices low, it has proven detrimental for dairy farmers. An estimated 10 percent of American dairy farms shut down in the last year, which has resulted in the need for American dairy producers to export their products.

According to the American Farm Bureau, many feel it makes more sense to export to Canada which is one of our most important trade partners. But Canada has strict import rules and regulations on its own domestic dairy industry. Cheap and abundant American milk would undercut the Canadian market, so Canada places tariffs on imported American dairy. Canada imports far more American milk than the U.S. imports Canadian milk. The U.S. has a trade surplus of about $400 million in dairy.

The USMCA broadens those rules a little, giving new quotas for American dairy exports to Canada. According to the agreement, American producers can export up to 3.6 percent of the Canadian market. Once that level is reached, heavy tariffs will be applied. This should be worth about $70 million in dairy.

Canadian dairy farmers are not happy about the changes, according to the farm bureau. But according to a recent release, Ian Sheldon, an agricultural economist who serves as the Andersons Chair in Agricultural Marketing, Trade and Policy in the College of Food, Agricultural, and Environmental Sciences (CFAES) said, “Dairy farmers in Ohio should be happy.” That means they’ll be able to sell more of their cheese, milk and other products there without those products getting taxed heavily at the Canadian border, he added.

The agreement also reassures corn growers, who may have worried about not being able to sell to Mexico, a significant importer of U.S. corn and corn products, Sheldon said in the release. “This has reduced some uncertainty for farmers that they’re not going to lose the markets they’ve had under NAFTA,” he said, referring to the North American Free Trade Agreement that went into effect in 1994.

The price that corn is traded has gone up in response to the announcement of the new United States-Mexico-Canada agreement reached on Sept. 30, which replaces NAFTA, he added. But trade barriers still exist, even in Mexico,. After the Trump administration imposed a 25 percent tariff on foreign steel and 10 percent on foreign aluminum purchases in the United States on May 31, Mexico, among other countries, quickly retaliated with hefty tariffs on imported U.S. products.

Mexico imposed tariffs, as much as 25 percent, on U.S. cheese, pork, apples and a number of other products, and those tariffs, along with the U.S. steel and aluminum tariffs, remain despite this new trade agreement.

Until Mexico removes those retaliatory tariffs, “the benefits of the dairy provisions in the new trade agreement won’t be fully realized,” said Ben Brown, manager of the farm management program in CFAES. 

As for corn and soybeans, “we already had free trade under the original NAFTA agreement, so the new agreement gets us back to where we were,” said Brown, who along with Sheldon works within the CFAES.

According to the CFAES, the biggest blow for Ohio farmers has been the soybean tariffs imposed by China, the world’s largest consumer of soybeans. Soybeans are Ohio’s top agricultural export, with exports totaling $1.8 billion last year. China imposed tariffs on U.S. soybeans in response to the tariffs imposed on its aluminum and steel products in the United States.

The tariffs on U.S. soybeans in China continue to block access to the Chinese market and

bring down soybean prices.

“Solving the NAFTA problem is great,” Sheldon said. “But I’m not sure it’s going to make China willing to lift their tariffs.”

Other organizations, such as the American Farm Bureau, National Corn Growers Association, and American Soybean Association(ASA) voiced concern that a withdrawal from NAFTA would impair the ability of farmers to export their goods and could spark retaliation in the form of tariffs and quotas.

Mexico is the top export partner with the U.S. for corn and the second biggest buyer of American soybeans, and Canada is the third. South Korea is the biggest buyer of soybeans from America. Currently, the trade situation is under the United States-Korea Free Trade Agreement (KORUS).

Ron Moore of the American Soybean Association recently stated, "As American soybean farmers, we demand that the U.S. remain in KORUS, and that we move forward to negotiate new trade agreements rather than retreating from existing ones.

The U.S. exported more than $6.2 billion in agricultural products to South Korea last year". Negotiations for both KORUS and NAFTA are ongoing, according to the AFB.

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