The United States will move swiftly to renegotiate the North American Free Trade Agreement (NAFTA). This 23-year-old tripartite deal removed tariffs and significantly increased commerce between Canada, the United States and Mexico.
Donald Trump, both as a candidate and president, has been harshly critical of the deal. The White House previously indicated that renegotiation – a major campaign promise – would likely begin in late 2017 .
According to a story published in the New York Times on April 26, President Trump seems eager to force a new negotiation with Canada and Mexico. At one point, he even suggested that the US could leave the deal.
Trump called NAFTA ” the worst trade deal ever“, and pointed out how it contributed to a US-Mexico trade deficit of US$63.2 Billion last year.
This is the fourth largest trade deficit in the country, after China, Japan, and Germany. The deficit between America and Canada, the other NAFTA member, was just over US$11 billion.
But that is only part of it. If you remove auto parts and cars, the US deficit with Mexico almost disappears.
NAFTA is a good deal for Mexico, Canada, and the US. Since 1994, the average foreign direct investment (FDI) into Mexico has been 2.6% (as opposed to 1% in the two decades prior to NAFTA). The US-Mexico bilateral trade is currently at US$ 580 billion.
Gains in agriculture
There is no indication of what such a renegotiation would include. Most of Trump’s outdated protectionism is based on immigration, manufacturing, and outsourcing jobs to Mexico. His calculations do not appear to have agriculture, a vital link between the US and Mexico.
The globalization of the US manufacturing sector may have led to job losses, but the agricultural industry has reaped significant benefits. Since NAFTA’s signing, US agricultural exports to Mexico have nearly increased five-fold.
13 % of the US corn crop was exported. Mexico accounted for 23% of the exports.
About 98% of corn used by Mexicans to make tortillas and other staples in their diet, comes from the US. Daniel Aguilar/Reuters
Mexico imported US$17.9 Billion in American agricultural products in 2016: US$2.6 Billion in corn, US$1.5 Billion in soybeans and US$1.3billion in pork, as well as US$1.2billion in dairy products.
Around 98% (or a staple in the Mexican diet) of the corn comes out of the US. Mexico also purchases 7.8% of the US pork production.
What was good for US farmers hurt Mexican agriculture. Mexico, lulled by the steady supply of US farm products at low prices and low transport costs, hasn’t diversified its agricultural imports. Mexico relies heavily on US farmers for its food, putting Mexico’s Long-term Food Security at risk.
America losing ground
As the top agricultural exporter in the world, America is also a leader in other countries such as Brazil, Australia and Russia. In recent years, as these rivals have improved their infrastructure and adopted modern farming and agriculture practices, America’s share of global exports has been steadily decreasing.
Politics has sometimes accelerated the decline. In 1979, the US prohibited grain sales to the then-Soviet Union due to its invasion of Afghanistan. The USSR was forced to increase its grain production. In 2016, Russia overtook the US in terms of wheat exports.
‘Super extra American rice’ in Mexico City. Jennifer Szymaszek/Reuters
Could Donald Trump’s government be facing a watershed moment similar to the one that occurred for American agriculture in 2016?
Mexico has lost confidence in its main supplier as the US threatens to shut its agricultural export doors. This could damage Mexico’s trust for years to come. Ernesto Zedillo, the former Mexican president, wrote in a Washington Post opinion article from January 2017 that it would be a waste of time to “play NAFTA tweaking with the Trump Administration.”
Mexico has 45 free trade agreements ( the most in the world ), but agriculture has always been the most sensitive topic in Mexico’s agreements. Trump has changed this.
The country has accelerated its search for partners to help meet its agricultural needs. Brazil and Argentina, both of which are major exporters of beef, wheat, soybeans, and other agricultural products in the US, are pushing their way up the queue. Both countries do not have a free-trade agreement with Mexico.
Mexico’s Deputy Minister of Economy, Juan Carlos Baker, said that Mexico is “pretty much advanced” with Brazil. Argentina is “a few steps back,” confirming that Mexico could offer South American farmers terms similar to the ones currently enjoyed by American Farmers.
Blairo Maggi, Brazil’s Minister of Agriculture, has declared that Brazil is ” Back in the Game.”
Mexico has also discussed bilateral agreements with Australia and New Zealand, two other major 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. Adecoagro is one of these companies. It owns and leases 434,000 hectares in Brazil, Argentina, and Uruguay and harvests 2 million tons of agricultural produce annually.
The New York-listed Buenos Aires firm exports agricultural products, including corn, wheat, and soybeans, to Africa, Asia, and the Middle East. Its main shareholders are the Hungarian-American investor George Soros and the Dutch Pension Fund PGGM.
It views NAFTA uncertainty as an opportunity to enter the Mexican market. This is especially true if Brazilian and Argentinian exports are given favorable US-style arrangements.