The North American Free Trade Agreement (NAFTA) has been good for the United States, but can use a bit of tweaking.
“NAFTA has fulfilled the obligations set out in the initial agreement,” says Luis Ribera, director, North American Studies, Texas AgriLife Extension, College Station. Ribera, speaking at the Texas Plant Protection Association (TPPA) annual conference in Bryan, said NAFTA improved trade and reduced tariffs and trade barriers. “Those were the goals set for the trade pact,” he says.
U.S. trade grew by 192 percent from 1994 (when the agreement was put in place) until 2016. Trade with Canada and Mexico grew by 288 percent.
Export sales to Canada in 1994 totaled $5.5 billion. In 2016, that number was $20.2 billion. Imports have also increased — $5.3 billion in 1994 to $21.6 billion in 2016. Mexico shows a similar trend. Exports to Mexico in 1994 totaled $4.5 billion and rose to $17.8 billion by 2016. Mexican imports in 1994 totaled $2.9 billion and increased to $27.9 billion in 2016.
Ribera said the U.S. historically runs an ag trade surplus with both Mexico and Canada, but in recent years a slight deficit has occurred, primarily because of low commodity prices and some high value imports from Mexico.
Vegetables and fresh fruits are the primary ag imports from Mexico. Vegetables, including tomatoes, account for $3.7 billion. Fresh fruit value is $4 billion. Greenhouse tomatoes are the No. 1 import.
The two-way trade is good for all three countries, he adds. He concedes that running a trade surplus looks better, but says imports also play an important role in the U.S. economy.
“For one thing, U.S. consumers may buy fresh fruits and vegetable year-round. Also, we want Mexico to flourish. If they have money, they can buy more from the U.S. It’s a good sign that Mexico has more money.”
He says that issue is not as big a factor for Canada. “Canada’s economy is doing well.”
Ribera says trade does more than exchange goods from one country to another. “Trade stimulates the economy and creates employment.
“We see some frustration with NAFTA negotiations,” Ribera said. “Where is it going, and what are the major issues? Agriculture is not a major issue.”
He says if ag were the only segment involved, NAFTA would likely be renegotiated by now. “Agriculture trade accounts for 6 percent to 7 percent of the issues involved in NAFTA talks.” Key issues include auto parts, telecommunications, pharmaceuticals, digital services, Buy American promotions, broadcasting, consumer rights, snapback (imposing a tariff if trade balance gets off kilter) and disputing settlement mechanisms.
Primary ag commodities under discussion include dairy, softwood, poultry and eggs.
“NAFTA has been good for the U.S.,” Ribera says. “It has fulfilled its purpose, but it can be improved.”
He says the U.S. can negotiate from a strong position. “The U.S. economy is the largest in the world. That’s close to 25 percent of the world economy. The reality is (the world) wants to trade with us. We are the Walmart of world economies. But we don’t want to overplay our hand.”
He adds that the U.S. is the largest exporter in the world, at $135 billion in 2016. Trade is especially important to agriculture. “Some 35 percent of ag income comes from trade,” Ribera says. “U.S. import value in 2016 totaled $115 billion.”
Importance of Imports
Ribera said imports are also critical. “We import 100 percent of our coffee. What would happen if we had no coffee? Riots and chaos. 100 percent of U.S. limes are imported,” a boon for margarita lovers. Other significant imports include bananas, 99.8 percent; tomatoes, 51 percent; and orange juice, 44 percent.
More than 70 percent of U.S. cotton production goes into the export market. Soybean and rice producers also depend heavily on exports to sell their crops. “We are good at producing those. Some things we are not as good at producing year-round. Produce, for instance.” But trade allows American consumers to have access to fresh produce all year. “Consumers are the winners.”
Trade will become increasingly important as population growth puts more demand on agriculture. By 2050, Ribera says, the world population will be nearly 10 billion. China’s growth will be significant. “And China also will see growth of the number of people with money to buy. That’s good for us; we are good producers of agriculture products.”
Few other countries are increasing food production. Brazil is an exception and is expanding significantly, as is Argentina but to a lesser degree.
Ribera adds that a larger population will mean farmers have to produce more food on less land but for people with more money. “People have to eat, and food has to be produced somewhere.” And American resources and technology give us an edge.
U.S. Consumers Fortunate
He adds that U.S. consumers have the best deal in the world for food, spending only 6.3 percent of their income for food. “That’s the cheapest food in the world. That means we have 93.7 percent of our income to buy other stuff, iPhone 10s and gadgets.”
He compares U.S. food expenditures to other countries: The United Kingdom spends 8.1 percent of income for food; Canada spends 9.1 percent; Mexico spends 23.1 percent; Ukraine spends 38 percent; and Nigeria’s people spend 60 percent of their incomes for food. “That leaves little for anything else.”
Ribera says NAFTA and other agreements play important roles in trade. He points to the significant improvements in trade over the past two decades. “Can we say that trade agreements were responsible for increased trade? No, but we can show a correlation.”
He says current squabbles with Mexico over immigration and border security may create some unease regarding trade deals. “But we do have a comparative advantage with Mexico and a tariff would have to be high for business to go somewhere else.”