By Cecilia Tortajada and Asit K. Biswas
Among other threats to Mexico during his election campaign, US President Donald Trump severely criticized the North American Free Trade Agreement (NAFTA), a 23-year-old tripartite agreement that removed tariffs and significantly increased trade between Canada, the United States and Mexico.
But that’s only part of the story. Eliminate imports of cars and auto parts, for example, and the US deficit with Mexico practically disappears.
Much of Trump outdated protectionist rhetoric relies on manufacturing, outsourcing jobs to Mexico and immigration. Agriculture – a key link between the two nations – does not appear to have entered his calculations.
Globalization may have contributed to the loss of manufacturing jobs in the United States, but it has had significant benefits for the American agricultural sector. U.S. exports of agricultural products to Mexico increased by nearly five times since the signing of NAFTA.
For the 2014-15 crop marketing year, US corn production was 360 million metric tonnes, of which 13% exported. Mexico accounted for 23 percent of these exports.
About 98 percent of the corn that is a staple of the Mexican diet comes from the United States. Mexico also buys 7.8 percent of all US pork production.
What has been good for American farmers has actually hurt Mexican agriculture. Cradled by a steady supply of cheap American agricultural products and low transportation costs, and assuming the good times continue, Mexico has not diversified its agricultural imports. It relies heavily on American farmers to feed its people, endangering Mexico long-term food security.
Could Donald Trump’s administration be facing a similar turning point for American agriculture?
As America threatens to shut down its agricultural export doors, it has shaken Mexico’s confidence in the reliability of its main supplier – perhaps permanently. In a Washington Post opinion piece published in January 2017, former Mexican President Ernesto Zedillo wrote that it was a “waste of time” to play “NAFTA tweaking games with the Trump administration.”
Today, the country is accelerating its search for new partners to meet its national agricultural needs. Detect long-term opportunities, Brazil and Argentina – the top two exporters of beef, wheat, soybeans and other prized U.S. agricultural products – are pushing their way to the front of the line. Neither currently has a free trade agreement with Mexico.
Mexico’s Deputy Economy Minister Juan Carlos Baker said the country was “quite advanced with Brazil. Argentina is a few steps back,” confirming that Mexico could offer South American producers terms similar to those currently enjoyed by American farmers “if that’s okay with us.“
While the Brazilian Minister of Agriculture, Blairo Maggi, announced that the country is “back in the game.”
In addition to government-to-government agreements, companies that produce and market agricultural products also see Mexico’s large import market with new eyes. One of them is Adecoagro, which owns and leases some 434,000 hectares of agricultural land in Brazil, Argentina and Uruguay and harvests two million tonnes of agricultural produce per year.
The New York-based company based in Buenos Aires, whose main shareholders include Hungarian-American investor George Soros, Dutch pension fund PGGM and the Qatar Investment Authority, currently exports agricultural products such as corn, wheat, soybeans and cotton to Africa, Asia and the Middle East.
He sees the uncertainties associated with NAFTA as an opportunity to penetrate the Mexican market, especially if Brazilian and Argentinian products benefit from export agreements favorable to the United States.
Mexico’s brighter outlook
In addition to diversifying its trading partners, Mexico is also seeking to boost its domestic agricultural production, according to several officials and government advisers.
New policies currently under consideration would encourage farmers to produce more, modernize their farms, increase crop yields and expand arable land. The country is also seeking to improve its transport and storage infrastructure, including ports that could be used for bulk grain imports.
All of these efforts will help put Mexico on an equal footing with the United States in future NAFTA negotiations. So, too, would be retaliatory measures against a tax threat at the US border. (And, anyway, if the United States decides to implement a, the market is likely to sell the Mexican peso aggressively, making Mexican products cheaper, even with new tariffs.)
Much like the 1979 U.S. grain ban that helped Russia improve agriculture, Trump’s vituperation could prove good for Mexico (and bad for the United States) in decades to come.
In the meantime, Mexico faces a difficult political and social landscape. President Enrique Peña Nieto’s approval rating is almost single digit and the economy is behaving anemic, with 2017 economic growth expected to be a paltry 1 percent.
As the presidential elections approach in 2018, Peña Nieto is unlikely to sell her people a new NAFTA that does not appeal to Mexicans. So it would be good policy, too, to play hard with Trump.
Mexico has more political options than it thinks. And he may have less to lose than his neighbor to the north.