OMAHA (DTN) -- Farm groups and political leaders on Friday raised concerns Mexico would react with new retaliatory tariffs on U.S. agricultural products, but Mexico's president declined to escalate yet another trade dispute with President Donald Trump.
Trump announced late Thursday that the U.S. would place a new 5% tariff on all products from Mexico because of illegal immigration. Mexican President Andres Manuel Lopez Obrador wrote President Donald Trump a two-page letter citing his country is doing what it can to reduce migrants from other Central American countries, but Lopez Obrador also pointed to the U.S. history as a nation of immigrants.
Lopez Obrador added, "...the motto 'United States first' is a fallacy" and "social issues are not resolved through taxes or coercive means."
White House officials had said the tariffs would not begin until June 10 and would ratchet up to 10% in early July. The president said the tariff would increase to as much as 25%. Mexico dispatched its foreign secretary to Washington to discuss the tariffs and immigration challenges.
On a press call, White House Acting Chief of Staff Mick Mulvaney said all Mexican export products would be subject to the tariffs.
While initially pushing on illegal immigration, Trump on Friday tweeted that to avoid the tariffs, "Mexico must take back their country from the drug lords and cartels. The tariff is about stopping drugs as well as illegals!"
The new tariffs come just two weeks after the U.S. dropped steel and aluminum tariffs on Mexico and Canada, prompting those countries to drop retaliatory tariffs as well. Those moves were expected to push all three countries to start ratification of the new U.S.-Mexico-Canada Agreement to replace the North American Free Trade Agreement.
Tom Sleight, president and CEO of the U.S. Grains Council, told DTN he was pleased with the measured response from Mexico so far. "That was nice to see and we hope the U.S. does the same thing and negotiates in good faith," Sleight said. "We don't need this tariff on corn, ethanol, sorghum, DDGs. You know, we've got it all going on with Mexico."
Sleight added that South American competitors Brazil and Argentina "are getting very close" in price to U.S. grains. "While we still have an advantage in that market, the gap is closing right now in the market today."
Trade groups representing corn growers, wheat growers and pork producers all called on President Trump to rethink the new tariffs for fear they could see retaliatory actions.
"The potential fallout from new tariffs is like struggling to survive a flood then getting hit by a tornado," said Chris Kolstad, chairman of the U.S. Wheat Associates and a wheat farmer from Ledger, Montana.
Kolstad said Mexican businesses spent 2018 broadening their supply sources in the fallout of tariffs over the past year. While Mexico imported more wheat, U.S. wheat exports declined. Kolstad noted "in a very disheartening coincidence" U.S. Wheat Associates is hosting a conference next week with Mexican customers, "to remind them of how important they are to us." The conference is being funded using trade promotion money given to U.S. Wheat Associates because of the negative impacts of retaliatory tariffs.
Lynn Chrisp, president of the National Corn Growers Association and a Nebraska farmer, pointed out Mexico is the top customer for U.S. corn.
"The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for USCMA but new tariffs threaten to reverse that progress," Chrisp said. "Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring."
David Herring, president of the National Pork Producers Council, called on President Trump to reconsider the tariffs. "American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement. Over the last year, trade disputes with Mexico and China have cost hard-working U.S. pork producers and their families approximately $2.5 billion," said Herring, a pork producer from Lillington, North Carolina.
U.S. pork exports to Mexico were already down 13% in volume and 29% in dollar value -- $261.9 million compared with $371.3 million in 2018 -- through the first three months of this year, according to the latest data from the U.S. Meat Export Federation. That decline in value was directly related to a 20% retaliatory tariff by Mexico that was just removed in mid-May. The retaliatory tariffs against U.S. pork "ended six consecutive years of record export volumes to Mexico, and early 2019 is showing no signs of relief."
Herring called on Trump to move ahead with ratifying the USMCA, which would maintain zero tariffs on U.S. pork exports. Herring also said the U.S. needs to complete a trade deal with Japan and resolve trade disputes with China "where U.S. pork has a historic opportunity to dramatically expand exports given the country's struggle with African swine fever."
Iowa officials from both parties offered some of the most critical responses to the president's latest tariff moves. Republican Gov. Kim Reynolds said the U.S. needs to secure the border and address immigration, "but it cannot be done on the backs of Iowa farmers. Iowans are frustrated with Washington's inability to reform our country's immigration system and address the crisis at the border, but I am asking the president to rethink this approach. Mexico is Iowa's top trading partner, and placing new tariffs could undo the progress made by the negotiated USMCA trade agreement," Reynolds said.
Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, was among the first political leaders Thursday night to criticize the president's plan. "This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump's and what could be a big victory for the country," Grassley stated.
The latest tariff announcement comes just as USDA lowered its forecast for agricultural exports for fiscal-year 2019 by $4.5 billion to $137 billion, though the outlook released Thursday left exports to Mexico unchanged at a projected $19.7 billion for the year.
In that same USDA trade forecast, USDA had projected a $400 million increase in agricultural imports from Mexico to $26.3 billion. The trade forecast was issued before the president announced the latest round of tariffs.
See the report here: https://www.ers.usda.gov/…
Chris Clayton can be reached at Chris.Clayton@dtn.com
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