The United States-Mexico-Canada Agreement and Impacts for U.S. Agriculture
The United States-Mexico-Canada Agreement and Impacts for U.S. Agriculture
An analysis of the USMCA's impact on U.S. agriculture reveals market access improvements tempered by the threat of retaliatory tariffs. As agricultural exports face challenges from trading partner reactions, the policy raises important questions about future market dynamics and sector stability, highlighting both gains and losses in the changing landscape.
The United States-Mexico-Canada Agreement and Impacts for U.S. Agriculture
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The United States-Mexico-Canada Agreement (USMCA) and Impacts for U.S. Agriculture
Maksym Chepeliev, Wallace Tyner and Dominique van der Mensbrugghe
Center for Global Trade Analysis Department of Agricultural Economics, Purdue University
Farm Foundation Forum 31 October, 2018, National Press Club, Washington, DC
- · USMCA consolidates gains of NAFTA-1.0 with modest improvements in market access
- · Nonetheless, farmers are facing strong headwinds as U.S. trading partners react to rising U.S. tariffs
- · Dissolution of NAFTA could be costly for U.S. agricultural interests
- · Auto content for duty free access is raised to 75% from the existing 62.5%
- · 45% of the auto content must be produced in factories where workers are paid at least $16/hour
- · Expanded import quotas in Canada for dairy and poultry products
- · A variety of other changes not directly linked to market access , for example:
- · Extension of copyright protection from 50 to 70 years
- · New measures for the digital economy: no duties on music and e-books, protection for internet companies
- · Improved transparency in import and export licensing
- a) Canada and Mexico react to U.S. tariffs on steel and aluminum
- b) Full impact of current U.S. actions and retaliatory measures
- · Reversion to most favored nation (MFN) tariff rates
- · Uncertainty about special regimes such as dairy quotas
- · Findings reflect work by Ciuriak et al. 2017 and Walmsley and Minor 2017
- · Results are subject to a number of assumptions, though likely to be robust
- · Results ignore adjustment costs
- · Results reflect long-term impacts after adjustment
- · Results assume standard investment behavior, however:
- · A volatile tariff environment could dampen the appetite for investment
- · A different tariff environment in NAFTA could impact investment and changes to the deep supply chains
- · USMCA consolidates the gains from NAFTA-1.0 and increases market access for some agricultural sectors
- · Lower agricultural exports
- · However, recent actions by the U.S. could end up harming farming interests that are targeted by retaliatory actions
- · Job losses and a reduction in land values
Introduction
An Historical Perspective
Since World War II, U.S. tariffs have been on a sharp downward trajectory
Canada and Mexico have doubled their share in U.S. agricultural exports
Source: GTAP 9 bilateral merchadise trade data
Mexican exports have gained market share, but Canada less so
Source: GTAP 9 bilateral merchadise trade data
The United States-Canada-Mexico Agreement (USMCA)
What's in the agreement
· Consolidates NAFTA 1.0
· Main market access changes
New market access measures in agriculture, estimated changes in quotas, percent
Example of dairy product quota at the HS6 level: fluid milk
Fluid milk: import tariffs, percent
Modest increases in U.S. agricultural exports
And modest impacts on agricultural incomes
n.e.s.
New trade policy environment
Canada and Mexico react, target agriculture & food
Canadian and Mexican retaliatory tariffs, percentage point increase
Canada
Mexico
Source: based on data provided in Li (2018)
decline in agricultural export revenue is $1.8 billion
Loss of 8,900 jobs in agriculture and food sectors, slumping land prices
New trade policy environment
Sharp decline in agricultural export revenue, total decline of $8 billion
Oil seed shock dominates the income effects
%
-16
Note : 45,000 jobs lost in agriculture and food sectors.
NAFTA Dissolution
NAFTA has led to low agricultural tariffs, with some exceptions
Source : Ciuriak et al. 2017.
U.S. exporters would face stronger headwinds if NAFTA dissolves
Canadian tariffs on U.S. imports
Dairy Products
Meat Products N.E.C.
Animal Products N.E.C.
Bovine Meat Prods
Food Products N.E.C.
Wearing Apparel
Beverages and Tobacco Products
Vegetable Oils and Fats
Leather Products
Textiles
Motor Vehicles and Parts
Vegetables, Fruits Nuts
Sugar
Manufactures N.E.C.
Wood Products
Chemical, Rubber, Plastic Products
Crops N.E.C.
Metal Products
Transport Equipment N.E.C.
Fishing
0
20
40
60
80
100
120
140
160
180
200
MFN
NAFTA
Significant drop in U.S. exports
Macroeconomic impacts of NAFTA dissolution, %
0
Ciuriak et al.
Walmsley and Minor
export losses, USMCA notwithstanding
And will lead to real income losses
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