Mexico wants US cheese tax

The US and Canada have spent the past 2 weeks had a fight about Canadian import tariffs on American dairy. However, Mexico has now also announced that it will impose import duties on part of US dairy exports (as a result of the duties on Mexican steel and aluminum). These levies will apply within the dairy industry the most effect have on the cheese trade between the two countries.

Impact on US industry
Rabobank reports in a press release that American cheese exports will be subject to duties of 5% to 10% from June 15. The plan is to increase this to 5% to 20% as of July 25. These rates seem low compared to the 270% from Canada, but can still have a major impact on the dairy sector in the US. In 2017, cheese exports to Mexico accounted for 28% of total US cheese exports, as well as 80% of total Mexican cheese imports.

The last time Mexico imposed import tariffs on American cheese was in 2010, for a period of 14 months. However, at the time this had relatively little effect on export figures. Tom Bailey, senior dairy analyst at Rabobank RaboResearch, expects this to be different now: "Given the seriousness of the situation with the NAFTA renegotiation, I even think that more products will be added to the list. An example of this would be the milk powders could be."

Opportunities for EU?
According to Rabobank Mexico a large supply of cheese, which should last them for 6 months. However, if the tariffs last longer, both countries will have to look for other options. For Mexico this could be the European Union (EU). This is because the country recently renewed a free trade agreement concluded with the EU. In addition, Mexico could also choose to sign a trade agreement with New Zealand.

The US will ultimately suffer from the tariffs as it seeks new markets for its milk surplus. More importantly, this could have lasting consequences for the US's reputation. The country can be seen as a less reliable trading partner on the world stage. “Mexico is the largest export partner and therefore influences the largest volume of US milk. For example, 3% of all milk produced in America was exported to Mexico,” Bailey said.

However, Rabobank also sees an advantage for the US. "It could force the US to look for new export markets. This means that the country could become less dependent on NAFTA and China."