The fifth round of North American Free Trade Agreement negotiations in mid-November in Mexico City ended with minor progress made, according to news reports.
Renegotiating NAFTA is crucial for U.S. agriculture. Since the agreement was enacted in 1994, the U.S. Chamber of Commerce says U.S. ag exports to Canada and Mexico have quadrupled, from $8.9 billion in 1993 to $38 billion in 2016. Overall, about 8% of the U.S. labor force — 13 million jobs — depends on NAFTA.
According to The New York Times, negotiators at the Mexico City meeting worked out details that cover digital trade, telecommunications, anti-corruption, customs procedures, and health and safety standards for food. However, negotiators still clashed on how to resolve trade disputes and award government contracts, as well as on defining rules of origin, which govern the amount of a good that needs to be manufactured in North America to qualify for zero tariffs under NAFTA.
Negotiations reportedly will resume in January.
The American Farm Bureau analyzed USDA reports and shares the following numbers regarding NAFTA’s impact on agriculture.
• In 2016, $20.3 billion in U.S. agricultural products headed to Canada, with $17.8 billion traveling to Mexico.
• Through September 2017, exports to Mexico were up 6% over year-ago levels, and total NAFTA exports were up 3%.
• During 2016, 80% of all agricultural exports from Vermont went to NAFTA partners. The top five states in terms of percentage of agricultural exports to NAFTA partners were Vermont, North Dakota, South Dakota, Delaware and Missouri. These states would be hit the hardest in the event of a NAFTA withdrawal.
• Another way to look at the impact of NAFTA is to look at how heavily each state depends on a NAFTA country as a destination for agricultural exports. During 2016, 51% of all ag exports from Missouri went to Mexico. The top five states in terms of percentage of ag exports to Mexico were Missouri, New Mexico, South Dakota, Texas and Nebraska. The top five states in terms of percentage of ag exports to Canada were Delaware (peaking at 65%), Wyoming, Maine, Vermont and Michigan.
So how concerned should we be about the U.S. pulling out of NAFTA negotiations, as President Donald Trump has implied? What would be the impact on Minnesota ag exports?
According to the latest numbers available in reports from the Minnesota Department of Agriculture, the state’s ag exports totaled $7.1 billion in 2016. China took 21%, or $1.5 billion in product, followed by Mexico, with 14% market share, or $1 billion in product. Canada was Minnesota’s fourth-largest ag export market at 8% market share, or $571 million.
From 1995 to 2016, ag exports from Minnesota to Canada saw 250% growth; to Mexico, 406% growth.
Overall, the estimated NAFTA-Minnesota ag trade economic impact equates to $4.7 billion in output, affecting 12,900 jobs.
Hence, there is reason for concern, says Su Ye, MDA chief economist. “We would like to maintain our current volume in trade — even increase it — because our production efficiency is increasing,” she says.
However, if NAFTA renegotiations are not successful, Ye doesn’t think ag exports from Minnesota to Canada and Mexico would cease. Consumer demand for products has built up in those countries over the years and is strong.
“Canada and Mexico will not stop buying our soybeans, meats, feed grains and other products cold turkey, because their food supplies would be in grave danger [if they did so],” Ye says. “Ag trade is essential for both countries.”
If anything, demand for our ag products might slow, and export growth would not be as fast as it has been over the last 20 years if there is no renegotiated agreement.
That’s not the direction we would like to see.
With NAFTA’s wide-reaching impact on the U.S. economy, we trust our national leaders will stay at the table and work toward an agreement. Ag is not the only beneficiary. A research study from the Peterson Institute for International Economics noted that withdrawing from NAFTA would cost the U.S. 187,000 jobs over a one- to three-year period, plus inflict indirect damage to our economy. The most affected sectors? Auto, agriculture and manufacturing.
Let’s keep talking.