Trump’s Trade Disputes with NAFTA Partners Imperil Texas Ag Exports

Update: The Mexican government officially struck back at the United States on Tuesday afternoon by imposing 20 percent duties on imports of certain American pork, apples and potatoes, along with up to 25 percent tariffs on certain cheeses and bourbon. The retaliatory measures were taken after the Trump administration placed tariffs on imports of Mexican steel and aluminum into the country late last week.    

This latest development in the escalating trade spat between the United States and Mexico doesn’t bode well for ongoing NAFTA renegotiations, a group of business executives told the New York Times on Tuesday. Trump in recent days has floated the idea of breaking the trilateral talks between the United States, Canada and Mexico into two seperate deals, an idea that a spokesperson for Texas Congressman Kevin Brady, a Republican from The Woodlands, told the newspaper was a nonstarter. “A NAFTA without both Canada and Mexico included is no longer a North American Free Trade Agreement,” the spokesperson said.

Original story: Pete Bonds, a 65-year-old Saginaw rancher who raises calves on thousands of acres in Texas and New Mexico, is worried. The fortunes of ranchers rise and fall on the tide of supply and demand, a rule he’s learned all too well in his long career. Bonds, along with the 727,000 other cattle ranchers in the United States, has the supply — herd numbers are at near-record highs. It’s the demand he’s concerned about.

Under the rationale of correcting trade imbalances with foreign nations, the Trump administration on Thursday levied tariffs on steel and aluminum imports from two of its top trading partners: Mexico and Canada. The countries responded in kind with their own tariffs on American steel and aluminum, along with duties on pork, blueberries and other agricultural products. Bonds is among the many American farmers and ranchers to express concern about brinkmanship that could result in additional tariffs and the breakdown of NAFTA renegotiation talks.

“What Trump is doing is trading. And he’s trading out in the public instead of behind closed doors. I don’t know if that’s good or bad, but it’s what’s happening,” Bonds said. “Markets don’t like uncertainty and we’re sure uncertain right now.” Since last week’s developments, ag traders have been a skittish herd; feeder cattle futures have steadily fallen at the Chicago Board of Trade.

An escalating trade conflict with China, the United States’ top export destination, has already spurred the Chinese to place tariffs on American pork and wine. China has threatened to add beef, wheat, corn, cotton and sorghum to the list — all dominant Texas agricultural commodities.

Bonds noted that Mexico and Canada buy a lot of meat and other agricultural products from the United States. They’re also members of NAFTA. Texas farmers and ranchers like to keep Canada and Mexico happy, considering those nations buy $4.7 billion annually in beef, cotton and other ag products from the Lone Star State alone. But now producers are worried that they’ll be casualties in the burgeoning trade spat.

“It looks like ag is gonna be the whipping boy,” Bonds said. “There’s a lot of sword-rattlin’. … It’s gonna be a good thing if we can keep this protectionist attitude out of both sides.”

Trump sought to renegotiate NAFTA shortly after taking office, arguing it was a “disaster” for the U.S. economy due to trade deficits between the United States and its partners. The deal has been a boon for American farmers and ranchers, who exported $35 billion in grains, meat, fruits and vegetables to Canada and Mexico in 2016, though it also devastated farmers in Mexico. In 1994, on the day NAFTA went into effect, indigenous people in Chiapas took up arms against the government, launching the Zapatista rebellion that roiled Mexico for decades. Two million Mexican farmers, stymied by an influx of U.S.-subsidized corn, have left their farms since the deal was signed.

“It looks like ag is gonna be the whipping boy. There’s a lot of sword-rattlin’. … It’s gonna be a good thing if we can keep this protectionist attitude out of both sides.”

But Trump isn’t taking aim at NAFTA out of concern for Mexico’s economy; he’s focused on perceived trade imbalances. A December analysis conducted by the Congressional Research Service confirms that trade deficits exist between the countries, but also states that “A trade imbalance does not imply any particular economic cost or benefit for either country.”   

Negotiations over NAFTA 2.0 continue, though little progress has been made. On Tuesday, Trump proposed splitting NAFTA into two seperate deals. He previously has said the agreement may be canceled altogether if it isn’t restructured to his liking. That would be a mistake, West Texas rancher Kelley Sullivan wrote in a February op-ed for the San Antonio Express-News. “In this situation, it would be difficult to remain competitive and could potentially force many ranching families out of business,” she wrote.  

It’s hard to imagine that last week’s tariff kerfuffles won’t affect NAFTA negotiations in some way, said National Pork Producers Council spokesperson Jim Monroe, but trade tensions also stand to make life harder for farmers in the short term. He said that Mexico’s plans to enact tariffs on American pork could potentially be “devastating” for the industry, which raises one in four pigs for foreign markets, of which Mexico is the largest.

“It’s definitely a concern — our industry is heavily dependent on exports. … Any disruption would be bad news,” Monroe said. The pork industry employs 6,900 people in Texas, generating $373 million in personal income, according to statistics provided by Monroe. Any lost jobs or income will have a “cascading negative impact” on rural communities that depend on pork production. “[The industry] plays a big role in the communities where it exists, whether it be equipment manufacturers, farmers who grow feed, or banks,” he said.

Still, there’s no way for farmers and ranchers — or anyone else, for that matter — to know how these trade disputes will sort themselves out or how agriculture markets will be affected in the meantime. They’ll just have to wait and see, Bonds said. “If I were smart enough to know what these markets were gonna do, I’d be sittin’ somewhere drinkin’ a drink with a funny umbrella in it,” he said.