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Trump threatens NAFTA and more

Prime Cuts with Steve Kay, from the December 2016 issue of Canadian Cattlemen

The integration of North America’s cattle/beef sector is one of the outstanding success stories of the North American Free Trade Agreement (NAFTA), which took effect at the start of 1994. The sectors in all three countries have thrived under NAFTA, with all classes of cattle entering the U.S. and beef flowing in all directions.

Trade data reveal just how important this integrated trade is. The U.S. imported 1.15 million feeder cattle from Mexico in 2015. This was up 3.5 per cent on 2014. Imports are down this year but totalled 712,740 head to the end of October. The U.S. imported 830,000 head of several classes of Canadian cattle in 2015, down 33 per cent on 2014. Imports by the end of October were down slightly from last year at 654,284 head. The U.S. exports few cattle but Canada and Mexico are the top two destinations.

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The beef trade is even more dynamic in terms of two-way movement between all three countries. Canada is the U.S.’s fourth-largest export market in terms of volume and second-largest in terms of value. Volume in 2015 was 324 million pounds (carcass weight basis) valued at US$925 million. Conversely, the U.S. in 2015 imported 628 million pounds of Canadian beef. The total value of Canadian cattle and beef exports to the U.S. in 2015 was C$3.714 billion, the largest value since 2002.

Mexico is just as important a market for U.S. beef exports, as it is second in volume and third in value. It took 363 million pounds in 2015 worth US$852 million. Perhaps surprisingly, Mexico exported 372 million pounds of beef to the U.S. last year, slightly exceeding imports of U.S. beef. That volume was up 26 per cent on the year before.

However, this long-established multi-billion dollar North American trade and other trade with Mexico are now under a dark cloud because of Donald Trump’s shock victory in the U.S. presidential election. While campaigning, Trump vowed to put heavy tariffs on imports (such as a 35 per cent tariff on vehicles made in Mexico), the erection of a wall along the U.S.-Mexico border and to renegotiate or leave NAFTA. Another vow is to remove illegal immigrants from the U.S. and severely restrict new immigrants.

One can only hope that as president, he softens his stance on these and other vows. But these are his campaign promises, so there are legitimate concerns throughout the U.S. beef industry and all of agriculture. Both use immigrants from many countries as a vital part of their workforce, from the ranch or farm to the food processing plant. Beef processors just before the election told me their biggest issue is a shortage of skilled workers.

As if this wasn’t worrying enough, Trump’s election is likely a fatal blow to the U.S. joining the Trans-Pacific Partnership. He adamantly opposes the TPP and there’s little likelihood Congress will pass it in its lame-duck session. Ironically, many Republican lawmakers support the TPP. But who can imagine them voting for it when their president-elect so opposes it?

Joining the TPP is crucial for the U.S. meat industry and all of agriculture. More than 50 per cent of U.S. farm products by value would enter Japan duty-free if the U.S. voted to join the TPP. Japan would reduce its 38.5 per cent tariff on fresh, chilled and frozen U.S. beef by 77 per cent over 15 years. The U.S. beef industry is losing US$400,000 per day without the TPP. Australian beef already enjoys a lower tariff and Canadian beef soon will. Yet the U.S. industry might have to live with this competitive disadvantage for at least four more years.

About the author

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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