Over the past several months, Arizona Farm Bureau has published articles on the benefits of international trade. These articles addressed the fact that international trade directly affects our agriculture members throughout the state. Proving a significant impact to all the state isn’t hard to do considering agriculture is a huge part of Arizona’s economy, bringing in over $23.3 billion annually. Of that, $1.7 billion is from exporting our agricultural goods outside the country.
Mexico is by far Arizona’s best trade partner, followed closely by Canada and China is a solid third.
The United States created the North American Free Trade Agreement (NAFTA) twenty-five years ago. This trade agreement included the United States, Mexico, and Canada. At the time, NAFTA was revolutionary and thought to be a fair and balanced agreement between the three countries. This might be true for some sectors but over the years agriculture trade became less fair and in need of a change. In fact, NAFTA is outdated, not including current technology and economic advances of today.
The Importance of Passing USMCA
In 2016 the three countries came together to initiate trade talks for what would now become known as the U.S. Mexico Canada Agreement (USMCA). The USMCA made changes to include the current technology advances as well as economic advances. Many updates and changes were made, especially to the agriculture sector. Over the last twenty-five years, there have been unfair practices in Canada regarding the labeling and sale of U.S. products such as dairy. This new trade agreement greatly improves all areas of agriculture, but mostly the poultry and dairy industries.
In 2017 the U.S. exported $619 million of dairy products to Canada. Under the USMCA, Canada will offer new and fair tariff rate quotas exclusively for the United States. Canada will also offer more reasonable prices for U.S. milk and milk products. In 2017 the U.S. exported $600 million worth of poultry products to Canada. Like dairy, Canada will offer new and fair tariff rate quotas exclusively for the United States. These are just a few beneficial changes made in the new agreement.
The USMCA is not only a much-needed advanced free trade agreement for our immediate neighbors but also will serve as a springboard for agreements to come. Currently, the United States is in trade talks with China; there is no doubt that the USMCA will serve as a baseline. As of 2017, Arizona exported $1,191 million agricultural products to China. These products include: citrus, tree nuts, beef, alfalfa, dates, and especially cotton. Arizona exports 70% of its cotton, of that, 20% is sent to China.
Even though the talks seem to be off to a rocky start both economies depend heavily on one another. The most recent bump in the road came when the Trump administration was under the impression that China was not holding up its end of the bargain when it came to the promises that were made. In reaction to the promises seemingly not kept the administration announced that it would place a 10% tariff on $300 million worth of imports from China. In response, China devalued the Chinese yuan to its lowest level in over a decade (one Chinese yuan = seven U.S. dollars). China also ordered state-owned companies to halt purchases of U.S. agriculture products. The administration believes that the devaluing of currency by China can be considered currency manipulation and is internationally illegal.
Many experts believe that these are just negotiating tactics by both sides. Trade talks are still set to resume on September 1, 2019 between the two countries. The tactics may have proven to be effective. China has recently softened its stance on the current “trade war” and offered to meet the U.S. halfway. The Trump administration came out and stated that it would like to meet with the Chinese officials in person. Things change quickly in the world of trade and the best solution is always a mutually beneficial one for all parties, also known as “win-win” amongst negotiators.
International markets are tricky and unpredictable. However, they are made more stable by free trade agreements and mutual understanding. It is imperative the U.S. follow Mexico’s lead and ratify the USMCA. Canada will follow shortly thereafter as it is already in process within the Canadian government. The ratification of the USMCA will prove to the world that the U.S. is open for business and ready to commit to more agreements overseas.
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