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DAVID KRUSE

Regurgitating NAFTA – part 2

April 21, 2017
Farm News

Relative to Mexico it is hard for me to understand the degree of animosity that many Trumpites exhibit toward Hispanics. Donald has made Hispanic immigrants out to be criminals and bad hombres and a significant number of his base screams support for the wall and for aggressive deportations as well as for killing NAFTA.

They want the dreamers deported too. They act like we should be at war with Mexico because Mexico has benefited from being a closely integrated neighbor. One Ag-Web blogger wrote "seal the border off, nobody goes in, or out, nothing, ship 11 million illegals back, see who wins." That was the expressed sentiment of many Americans.

To me that sounds like something a communist or fascist regime of the past would do. My impression of that plan was that it was astoundingly stupid. Why? What would justify that? Corn, soybeans, cattle, hog and poultry prices would all drop to new lows, and we would have an immediate crisis with farm labor. U.S. consumer food prices would soar. U.S. consumer prices of many goods would jump shifting export demand to Asian or other sources unless of course the U.S. put up full protectionist tariff barriers to block those too.

China and Japan who have far worse balance of trade relationships with the U.S. than Mexico would benefit from the "act of war" advised by the blogger.

Dairies and packing plants would close. The cost of automation would soar as adoption was forced. Some estimate that farm employment is already 20 percent short of finding the workers they could employ. In other words, there are too few illegal workers to fill all of the farm sector jobs available. Hard to argue that way isn't it, that illegal workers are taking these jobs from Americans. Any American who wants to get hired on a farm that is employable could get hired immediately.

My son was given his grandfather's citizenship documents which he had framed. In them his grandfather had to swear that he cut any allegiance to the Danish King twice. All that determines legal immigration has historically been is a piece of paper.

Few are even talking citizenship for those here without the right papers, just legal worker status. Destroy the Mexican economy like the blogger advised; militarize the border while deporting Hispanics and you will have a multi-tiered disaster on your hands rather than a solution to anything. If they think that what we have now is losing and that bloggers plan is their concept of what constitutes winning, U.S. sanity is in danger.

There is not much for the U.S. Ag sector to gain from reopening negotiations over NAFTA. We have access to the Mexican market. Frankly the greatest opportunity for the U.S. Ag sector in renegotiating NAFTA would be reducing trade barriers for dairy and poultry with Canada. The great irony is that if tariffs are placed on autos from Mexico the cost of those vehicles to American consumers goes up $1,000 each.

The WSJ concluded, "One reason that the U.S. benefits from free trade deals is that America has among the lowest import barriers on earth (5 percent average for agriculture) so new agreements tear down levies abroad and open new markets (that was exactly what would have been accomplished with TPP). President Trump should consider that reality before he escalates on trade--betraying the Farm Belt voters who are relying on him to bring growth and opportunity."

I believe that the trade risks to the Ag sector have been conveyed to the Trump administration so if they harm U.S. Ag trade it will not have been an unseen consequence but a calculated trade-off to throw us under the bus.

They won't give a twit about the U.S. Ag sector until food prices surged at the grocery store and they would blame us for that rather than their stupidity. Pre-NAFTA WTO tariff rates were 3 percent for U.S. tariffs and 8 percent for Mexico on manufactured goods and 20 percent on Ag products. It was a great trade deal for US Agriculture and has worked out that way.

Mexico wants to include energy and telecom into the new agreement which no one here should have a problem with. Mexico has already opened those industries but elections there could change that so incorporating this into a new NAFTA would have benefit of confidence. Mexico also wants 'TSA pre-check."

Mexico got truck access to the U.S. in the first NAFTA that they later lost. They will want that again.

"Rules of Origin" will be revisited. These rules determine what constitutes a finished product within the free trade areas. Currently 62.5 percent of a product (auto) must originate from North America and were that increased to 75 percent it would require more U.S. components. They will reportedly ask for a reduction in the paperwork necessary to export to Mexico and Canada dropping fees and taxes. Mexico's VAT tax will come up. They want dispute tribunals seen as unbalanced relative to U.S. interests changed.

Trump put negotiating NAFTA first so that means that it will set a precedent for other trade deals to come. That worries me. He can't give Mexico too good of a deal or others will want one too. Operating without a trade disruption is not as important to Trump's trade team as it is to U.S. farmers.

It will be very difficult for them to meet all the expectations they put upon themselves with promises to renegotiate "the worst trade deal ever!" Someone is going to throw up.

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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