NAFTA free trade agreement broken

Already during the election campaign it became clear that Donald Trump was not a fan of NAFTA, the free trade agreement between Mexico, Canada and the United States. He even called it "the worst free trade deal ever" because it would hurt the US and cost millions of jobs.

Trump indicated in the election campaign that if he became the American president, he would also like to renegotiate that treaty. And if Mexico and Canada refused to renegotiate, Trump even threatened to unilaterally cancel the treaty.

Canceling NAFTA?
Just over half a year after his inauguration as the new US president, talks between the 16 countries to restructure NAFTA begin today, Wednesday, August 3. There is, however, something remarkable going on.

Residents of major agricultural states in the United States overwhelmingly voted for Donald Trump in the November 2016 presidential election. However, now that he's renegotiating the NAFTA treaty, they're calling on the man they voted for (knowing that he even wanted to cancel NAFTA) to let the agricultural sector out of those new talks.

Canada and Mexico indispensable
The realization seems to have sunk in that the 23-year-old trade deal has been good for the American agricultural sector. Thanks to NAFTA, American farmers have free access to the Mexican and Canadian markets, where they can earn a good living.

In fact, annual exports of agricultural products to Mexico were $4 billion in the first year of NAFTA. That has since grown to $19 billion. Together with Canada, Mexico now accounts for more than a quarter of total US agricultural exports.

Numerous interest groups from the agricultural states are calling on Washington not to jeopardize that position. In addition, it has recently become apparent that entrepreneurs in agriculture need to borrow money more quickly to keep their business afloat. It also appears that the average income in the sector, compared to a few years ago, has halved due to the low prices. If the Mexican and Canadian markets also become more difficult to access, this could easily lead to a wave of bankruptcies.

Trump's first day at work
American farmers are particularly concerned that the government will pay more attention to the needs of the industry. In addition, the industry would suffer under the new NAFTA treaty, so that the industry gets a better deal. They fear, for example, tariffs on agricultural products on the borders with Canada and Mexico.

That such a black scenario for the agricultural sector is certainly not impossible is shown by the fact that on his first day in the White House, President Donald Trump withdrew the United States from free trade talks with Asian and Latin American countries, including giants. such as Japan and China, the so-called Trans-Pacific Partnership (TPP).

American farmers, among others, looked forward to being able to sell their stuff, under the umbrella of the TPP, without duties or at a lower cost in Asia and a handful of other growing countries. So that hope mercilessly crushed 'their' President Trump on his first day at work. 

Edin Mujagic

Edin Mujagić is an economist and manager at Beleggingsfonds Hoofbosch. He focuses on global central banks, and in his blogs he writes mainly about developments in interest rates and inflation. He has also written several books.

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