US, Mexico Reach Trade Deal
President Trump Says Farmers Who Have Stuck by Him Will be Pleased With Deal
OMAHA (DTN) -- In announcing a preliminary agreement with Mexico meant to renegotiate the North American Free Trade Agreement, President Donald Trump said Monday he was "terminating" NAFTA and establishing the "U.S.-Mexico Trade Agreement" and that talks would start this week on bringing Canada into the new trade agreement.
"They use to call it NAFTA," Trump said. "We're going to call it the United States-Mexico trade agreement. We'll get rid of the name NAFTA. It has a bad connotation because the United States was treated very, very badly for NAFTA."
Trump called Mexican President Enrique Pena Nieto as he made his announcement. "I thought we would congratulate each other before it got out," Trump said.
The president said the agreement would be good for U.S. manufacturers and farmers.
"Our farmers are going to be so happy," Trump said. "Farmers have stuck with me. Mexico has promised to immediately start purchasing as much farm product as they can."
Most agricultural groups involved with major commodities and proteins simply wanted to maintain the zero tariffs that worked to stimulate U.S. agricultural exports to Mexico. USDA reports Mexico is the No. 3 overall market for U.S. ag products in 2017 at $18.6 billion.
Here is a breakdown of ag exports to Mexico by product:
-- Corn: Mexico remains the largest export market for corn at 14.25 million metric tons since the marketing year that began last Sept. 1, up more than 10% from the same period a year ago.
-- Wheat: Mexico, for the wheat marketing year that ended May 31, remains a large U.S. wheat buyer, as well, at 5.03 million metric tons, but sales are down 3.4 million metric tons from the 2016-17 marketing year.
-- Soybeans: Mexico is the second-largest market for U.S. soybeans, a distant second behind China with Mexico importing 3.95 million metric tons in the marketing year that began last September. Sales are up about 10% from a year ago.
-- Pork: From January to June, Mexico remained the top export market for pork tonnage, up 6% from a year ago, while Mexico is second in pork export value at $615 million, coming in behind Japan.
-- Beef: Mexico is the third-largest market for beef tonnage, up 9% from a year ago and ranks fifth in value at $392,000 million through the end of June.
The price impact of Monday's announcement was mixed. October hogs early were up 2.77 cents a pound. December corn, however, was down 2 cents early on. Soybeans were down more than 10 cents at midday.
"Obviously, the news of a new trade agreement with Mexico is bullish for grains, but at the moment, corn and soybeans are also dealing with the anticipation of big crops this fall, so the price reaction is muted," said DTN Analyst Todd Hultman.
Agriculture Secretary Sonny Perdue said the trade agreement specifically addresses changes in biotechnology, which were not part of the original NAFTA deal. "And we mutually pledge to work together with Mexico to reduce trade-distorting policies, increase transparency, and ensure non-discriminatory treatment in grading of agricultural products."
Perdue called it "a great victory for farmers and ranchers, because locking in our access to Mexican markets is critical to supporting farm income and strengthening rural communities. Mexico has historically been a great customer and partner and we are happy to have this resolved for our agricultural producers."
Some U.S. fruit and vegetable growers have pushed for seasonality restrictions in any agreement with Mexico. No such details were released Monday, but reports over the past few weeks indicated the Trump administration dropped such a request to focus more on automobile and manufacturing issues.
A key issue throughout the talks has been to get more automobile parts built in North America, as well as raw materials. Because of the growth of auto manufacturing in Mexico, the U.S. and Canada also both have wanted Mexico to require higher wages for autoworkers.
The president's comments made it seem he was ambivalent about Canada's involvement in the new trade deal, and Canada may be placed in a take-it-or-leave-it situation.
"One way or another, we'll have a deal with Canada. It'll either be a tariff on cars or it'll be a negotiated deal. Frankly, a tariff on cars is a much easier way to go. Perhaps, the other would be much better for Canada," Trump said.
Canadian officials are expected to arrive in Washington to begin talks as early as Tuesday. Agriculture could play a larger factor in these talks, as Trump has repeatedly complained about Canadian dairy tariffs and restrictions on U.S. dairy exports to Canada.
Reuters quoted a spokesman for Canadian Foreign Minister Chrystia Freeland on Monday as saying Canada is ready to continue working on a modernized agreement. "We will only sign a new NAFTA that is good for Canada and good for the middle class. Canada's signature is required," the spokesman said in an email to Reuters.
The NAFTA deal is up against a time deadline under U.S. Trade Promotion Authority to get a deal done and approved by Congress. The U.S. and current Mexican officials also want NAFTA completed before the next Mexican president, Andres Manuel Lopez Obrador, takes office Dec. 1.
U.S. Trade Ambassador Robert Lighthizer said Mexico-U.S. deal would be signed at the end of November. He expected a U.S. letter to be delivered to Congress by the end of the week. It will be signed by other parties in 90 days.
Lighthizer later said on a press call that the trade agreement reached with Mexico would be for 16 years, but reviewed for possible changes or extension every six years.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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