Vinegar and the sum of trade progress
President Trump uses vinegar to get what he wants but rarely any sugar. He is more inclined to use a sledgehammer to beat what he wants from whom he wants it from and then if they resist, he beats them again. That is why ag and ethanol groups are afraid to challenge Trump in spite of his having the most damaging RFS and trade policy for the ag sector in modern history. They fear if they criticize him, he will rough them up worse by nixing E-15 or drastically reducing money in the farm bill.
He said NAFTA was the worst trade deal in history and imposed tariffs on Mexican and Canadian steel/aluminum to get them to agree to the USMCA. Then he keeps the tariffs in place after promising not to. He has threatened Congress with the withdrawal from NAFTA to force them to ratify it. He has separated children from parents at the southern border while picking off a few DACA kids to deport to send the clear message their presence here is not wanted. Then when they keep coming, he is now threatening to cut off aid to the offending countries where the refugees are originating from. No soup for you.
We contribute $450 million in aid to Honduras, El Salvador and Guatemala. This aid has not been enough, or spent correctly, to change those countries so that fewer refugees flee, but the loss of it will most certainly make it worse not better. Next, he threatens to shut the border crossing with Mexico until they stop the refugees flowing through their country and/or add more tariffs on Mexican autos.
The U.S. did an estimated $616 billion in trade with Mexico in 2017 which is extremely important commerce to the heartland and ag industry. The threats to close the border were enough to disrupt trade. The Milk Council says they exported $1.4 billion in dairy products to Mexico last year. We sold over a $1 billion in pork and not to leave corn growers out, Mexico bought $600 million in feed grains.
Politico says that 70 percent of trade with Mexico are things that have to cross the border. About half of vegetable imports and 40 percent of fruit imports come from Mexico. Some Americans would miss their avocados. This is integrated trade that would see repercussions reverberate through the entire food chain if blocked, which shutting the border would surely do.
While trade would be embargoed it is not clear that the refugees, now waiting at the border for due process would not just do an end run around our legal ports of entry and come in illegally. These refugees seeking asylum in and of itself is not illegal. That is why they are backed up at ports of entry and not all wading the river. Closing the southern border would tell Mexico not to depend on us for their food stuffs anymore. They had already re-examined their origination of sourcing foodstuffs elsewhere during NAFTA 2.0 negotiations. The logistics and freight favor sourcing commodities from the U.S. but a closed border would change all of that. Shutting the border even for a short time would set trade back with Mexico for years.
One thing that I have noted is that his base is good to go with whatever vinegar DJT wants to pour down throats to get what he wants. His base thinks that is strength. “America First” doesn’t coddle, don’t turn a cheek, don’t lend a hand, or become concerned with taking advantage of others. His base doesn’t get shook over the morality of things if it serves their purpose. America is divided between those that “America First” makes proud and others who are ashamed.
One of my fears all along relative to NAFTA 2.0 was that Trump would interject border issues into the process, preventing getting a trade deal done. By the way, it is not done. My fear over the border issues blocking it finally came to the forefront. Closing the border with Mexico would be worse than losing NAFTA. Trump claimed that closing the border and/or laying tariffs on Mexican autos would be a financial plus for us. Guys…that is just insane. He was threatening to drop the USMCA if they do not do what he wants on border issues. There you have it. It took him awhile but he got there.
Relations with Mexico are more than just NAFTA 2.0. Mexico does have to pass some labor laws to comply with the USMCA. They have said that they will, targeting accomplishing that this month. I doubt very much that they will be the roadblock to ratifying the USMCA.
My experience with corporate wheelers and dealers is that the negotiation starts after the initial deal is done. Trump lives in that world. Yeah, they negotiated an agreement, but Trump is still trying every angle to “improve” the deal with both Canada and Mexico yet. Just like the trade deal with China, they may be nine tenths of the way there but that last mile is like ten and it isn’t done until it is done. None of this is done yet.
Trump is trying to use the tariffs and the USMCA to leverage a larger border responsibility from Mexico. I think they have been accommodative. Obrador has said that he didn’t want a confrontation, but Trump will not let him off that easy. DJT will push until he gets one. Tariffs on Mexican autos would be less disruptive than closing the border? I read one ag commentary that thought auto tariffs would let U.S. ag off the hook. That was a dumb assumption. If we impose tariffs on their autos, a new round of retaliation will target Ag. If you add up the sum of trade progress, it went backwards for the U.S. ag sector, not forward. Trump’s vinegar supply is being depleted by so much use that he may have to import more from Canada…if we are still trading with them.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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