We need a new NAFTA
By Charles A Hice
All Fair In Love and Trade Wars
In this piece I discuss trade wars as they relate to our NAFTA allies, and eventually discuss the real trade enemy – China. Perhaps we are not focusing in the right direction with some of these trade actions.
US agriculture consistently creates a surplus of commodities, and exports these commodities to other countries. We don’t do this for free. We do this because 1) we are a capitalist and entrepreneurial people, and 2) we like to help our neighbors. (Or we like to ensure some sort of intertwined mess of world trade)
NAFTA and tariffs have been the center of much debate lately. The intertwined economies of the US, Mexico, and Canada have made these latest tariff actions a bit more complex than first thought. Free trade does not mean we exchange gifts to each other free of charge or give away our commodities without reimbursement. What NAFTA allows is the trade of goods across borders without tariffs on imports or exports between the 3 countries that signed the treaty.
Tariffs of course are taxes on goods from other countries, that the government mandates and that the consumers or importers have to pay. So in other words, if the current administration raises a tax on a product coming into the US, then we as citizens and distributors of that product have to pay that tax to them if we choose to buy that product. Tariffs do not hurt the country importing the goods directly, but only in the sense that they may make domestic products more appealing to buy because they are possibly cheaper than the imports.
Now of course, this rightfully makes whatever country trying to export goods to us a bit irritated – so in return they decide to do the same to any products that we send them.
But what if we happen to be a country with an economy heavily reliant on imports, and what if our own industries are heavily reliant on exporting products? Which is exactly the situation we find ourselves in.
Since NAFTAs implementation, US exports have increased nearly 500% and NAFTA has made North America the largest free trade zone in the world. Former Undersecretary of Commerce Stefan Selig has stated that NAFTA currently supports over one million American jobs on Agricultural trade alone in some manner.
The US has the most competitive Agricultural industry in the world, and that strength is increasingly dependent on international trade, either from NAFTA or other policies. However, NAFTA does have both pros and cons.
NAFTA, for instance, has lowered the price of goods across borders for consumers in all countries; it has increased our GDP, and strengthened good will relations between countries. But NAFTA has been one of the major causes of manufacturing job loss in the US. Unfortunately, it is doubtful we will see the return of those jobs as they used to be. One of the biggest reasons there is unlikely to be a return to manufacturing as it used to be is because of the process of automation though, and not just because other foreign countries break the rules to make cheap goods. So it is doubtful we will see a full force return to the good ole days of American manufacturing.
However, since the Trump administration has been moving to tariff certain imports, the US steel industry has already seen an increase in jobs by the thousands –p even tens of thousands. Unfortunately, this is at the risk of hundreds of thousands of other jobs.
In an odd ironic twist, NAFTA, although excellent for US farmers, it has severely hurt small farmers in Mexico, as they just aren’t able to compete with the larger US agribusinesses.
The major issue with NAFTA, unlike other types of trade agreements (I’m looking at you China), is that the deals are rarely, if ever, one sided. Things are both given and taken from all participants in some mutually beneficial way. And as the agreement goes on, and ties strengthen, international markets become increasingly intertwined. The relationship becomes almost symbiotic. This means that if one party decides to pull out of a deal, the other party can decide to do something equally offensive. This causes serious problems in those industries that were intertwined – specifically American Agriculture.
This is what we have been seeing endlessly on the news lately, as certain countries are raise tariffs on heavily exported US industries.
It’s a tit for tat game. The US decides to stop allowing Canada to import machinery into the US free of tariffs, Canada in turn raises tariffs on Beef imports coming from the US. We raise tariffs on Mexican materials, and they increase tariffs on diary imports – which leads to a billion pounds of American cheese to be left in cold storage that otherwise could have been sold.
We have seen this play out in other world trade affairs, in particularly the dealings with China, and the threat they pose to the American soy bean market with regards to rising tariffs.
The markets immediately at risk in a trade war are going to be Ag markets. Specifically the markets with the most to lose are American farmers in the pork, beef, dairy, soy, wheat, and almond industry among others.
Trade wars are rarely ever a good idea leading to good results, with some of the last good examples being sometime during the 1800 when ideas like expansionism, imperialism, and the industrial revolution were at full swing. But it’s a far different world we live in today.
Back in the 1930’s a similar trade war was proposed on Europe from the US in what was known as the Hawley-Smoot tariff act. This act was proposed specifically to help farmers, but ultimately backfired as European countries did exactly as they are threatening to do today. The Tariff act of 1930 is heavily regarded as worsening the Great Depression, if not right out catalyzing it.
Now, this is not to say that the market would not adjust. It would. It always does. However, at the current level of globalization we are at, an adjustment of that caliber may mean the complete apocalypse of an entire industry and then some in the US and abroad. And unfortunately, Ag is in such an intertwined and at times fragile position, that it would suffer extremely in some sectors. Trade wars will take their toll on all countries. And though we will survive them, it’s unclear exactly how things will turn out in our favor in the Ag industry.
This has already lead to many groups in the Ag community banding together in order to plead with the current administration about its stance.
Many US citizens have the feeling that the US is constantly making deals with other countries where it is always on the losing end of the agreement in some sense. And this may not exactly be the case, least of all where agricultural trade is considered. If not for open trade, our Ag industries may be suffering, and some industries may be completely lost. The Dairy and Beef industry in particular may be among the first to experience a major blow. We simply make enough to support ourselves and other parts of the world.
However, there is always the possibility that the current US administration may be using a tactic to get better trade deals for our country, which may work. Certain trade agreements we have are dubious to say the least, especially with that of China. (Oh China…. There you are again making problems)
Though NAFTA may be a treaty the US farmer might want to stand behind, with some minor change, trade with China is something a trade war may be the right way to go for global political reasons. However, the Chinese government can definitely wear unrest better than most other countries; after all, they are not exactly well known for caring about its own people’s opinions or unrest. China doesn’t have the best track record of human rights support. Democratic countries, such as us, do have to worry about public opinion and sectors of our economy, but with a country like China, what do they care if the hurt millions of their own people with their own policy of retaliation?
Among other reasons that China is a dangerous country to develop unchecked trade relations with, is its constant lack of oversight and obvious black market counterfeit goods markets that are specifically targeting US industries. China has attacked anything from the honey market to the computer market with virtually no consequence as previous politicians have continued to get further in bed with them. Perhaps a trade war of some kind directed towards China, may help in adjusting some of the problems we have faced from them.
But NAFTA does not concern China or Europe, or any other entities except our direct North American allies. And for decades we have worked together with them, entwining our economies further and further together. NAFTA may need some fixing, but the most important countries we need to address in trade will be China, OPEC, Russia, and certain EU allies.
What are your thoughts and why?
Editors Comment: Since the writing of this article, a new agreement called the USMCA (The new NAFTA) has been reached. What are your thoughts or feelings on this?
By Charles A Hice
Contributor and Editor
