From the end of January, NAFTA (the free trade agreement between the United States, Canada and Mexico) negotiations will resume. Last August, US President Donald Trump fulfilled an election promise by forcing Mexico and Canada into negotiations to reform this trade agreement.
NAFTA was signed by the three parties in 1994, creating the largest free trade region in the world. Since then it has always been a topic of intense debate. The purpose of the treaty was to reduce and abolish trade tariffs between the 3 countries, in order to simplify and promote trade. This has mainly affected the import and export of agricultural products. Since 3, there have been no trade tariffs on agricultural exports between the United States (US) and Mexico.
Lots of opposition
Although NAFTA has been moderately successful, the treaty still faces a lot of opposition. From the moment the treaty was signed, there were fears (especially in the US) that companies would establish themselves in Mexico. This is due to lower production costs and lower wages. Something that certainly happened. An estimated 750.000 American jobs have been lost as auto and textile factories moved to Mexico. In addition, there has been downward pressure on wages due to the increase in competition.
On the other hand, there are positive effects of NAFTA, also for the US. Total trade in North American agricultural products has quadrupled since the signing of the treaty. This has, among other things, contributed to the production of agricultural products and also increased productive investments. Prices have also fallen, as the rates are no longer passed on to consumers. Finally, US GDP also rose by 0,5%.
Trade deficits
The biggest problem US critics have with NAFTA is that the US has run up trade deficits with both NAFTA partners since 2015. In their view, this is because American companies cannot compete with the lower prices of Mexican products. According to the Americans, the total trade deficit with Mexico was worth around €2016 billion in 55.
This was one of the main reasons that Donald Trump said during his campaign and during his first months in office that NAFTA is an unmitigated disaster and rated it as the worst trade deal ever signed. He therefore promised to renegotiate or even unilaterally terminate the 23-year-old trade agreement if Mexico and Canada did not want to meet his demands.
These renegotiations started in mid-August. The US wants to make fundamental adjustments and create a 'fairer' agreement that will 'bring balance to the region'. It is also certainly not inconceivable that Trump will withdraw the US from NAFTA if his conditions are not met. He also did this in 2017. Then he withdrew the US from the negotiations on trade agreements with the European Union (TTIP) and Asian countries (TPP). So far the negotiations have not yielded any results. Trump blames this on the Mexicans and Canadians.
American farmers
Farmers in America's major agricultural states voted overwhelmingly for Trump in the presidential election and he remains popular; mainly due to tax relief for farmers. However, now that Trump has broken up the NAFTA agreement, farmers are questioning his policy.
The renegotiation of the NAFTA treaty is of great concern to farmers, as withdrawal from NAFTA could significantly affect the market share in Mexico and Canada. This would have major consequences, because more than a third of American agricultural exports go to the two neighboring countries. In 2, American farmers exported more than $2016 billion worth of agricultural products to Mexico and nearly $16 billion to Canada.
In addition, farmers fear that (without NAFTA) the two neighboring countries will impose high import tariffs on American products. Canada and Mexico could also source soybeans and grain from other countries. An October 2 report on the NAFTA negotiations and expected consequences confirmed these concerns. For the agricultural sector, it is expected that 'tariffs on agricultural products will increase prices for consumers and other users' and will also 'lead to declining competitiveness'.
New year, new negotiations
The sixth round of NAFTA negotiations will start on Tuesday, January 23. The hope of many American farmers is that it will finally become clear that the US will not leave NAFTA. It remains to be seen whether this will actually happen. Expectations for the new round of negotiations are not high, as the first 5 rounds have achieved little or nothing.