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Tariffs Overwhelm USMCA Gains

Monday, November 5, 2018   (0 Comments)
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OMAHA (DTN) -- The new North American free trade agreement, once ratified, will provide a bump in U.S. agricultural exports. But an analysis released Wednesday by the Farm Foundation shows those trade gains are overwhelmed by lost exports due to retaliatory tariffs.

Farm Foundation contracted with economists at Purdue University to estimate the impacts on U.S. agriculture from the United States-Mexico-Canada Agreement (USMCA). The study contrasted USMCA with its predecessor, the North American Free Trade Agreement. The study also looked at the impact of retaliatory tariffs by Canada, Mexico and China against U.S. agricultural exports.

The USMCA is hindered by retaliatory tariffs Canada and Mexico initiated against U.S. farmers after the Trump administration raised tariffs on Canadian and Mexican steel and aluminum. Those tariffs will bring down U.S. ag exports by $1.8 billion. Once Chinese tariffs are added in, U.S. agricultural exports could fall $7.9 billion, "Thus overwhelming the small positive gains from USMCA." Oilseed exports show the sharpest decline at 21%, while meat products drop by 8.7%

As of now, there is no direction from the Trump administration on what may cause the U.S. to remove the steel and aluminum tariffs, called the Section 232 tariffs, or whether they would remain after the USMCA is ratified. Any talks with China would have to begin with President Donald Trump and Chinese President Xi Jinping first meeting. That is not expected to happen until the G-20 summit in Argentina at the end of November.

The Farm Foundation study marries up with USDA's trade aid to farmers. USDA released an initial tranche of $4.7 billion earlier this fall based on 50% of a farmer's production for the commodity. The majority of payments under the Market Facilitation Program are going to soybean producers who were expected to garner nearly $3.7 billion in payments. A second round of payments is expected to happen between now and the end of the year, but no announcement has been made.

Agriculture Secretary Sonny Perdue has also reiterated in recent days USDA is not expecting to issue later payments in 2019, but a USDA spokesperson said Wednesday that USDA will continue monitoring the trade situation and will determine the prospect of additional payments.

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