Business

What the potential NAFTA replacement means for Iowa

Steel and aluminum disputes remain unsettled, keeping pork tariffs in place

President Trump announces the United States-Mexico-Canada Agreement as U.S. Commerce Secretary Wilbur Ross looks on during a news conference in the Rose Garden on Monday. (Reuters)
President Trump announces the United States-Mexico-Canada Agreement as U.S. Commerce Secretary Wilbur Ross looks on during a news conference in the Rose Garden on Monday. (Reuters)

Iowa trade and commodity experts say the last-minute trade agreement among North America’s three largest nations is a step forward in terms of solving overall trade tensions.

But pork producers and manufacturers will have to wait for relief from ongoing tariffs.

Canada joined the preliminary agreement, dubbed by President Donald Trump as the United States-Mexico-Canada Agreement, or USMCA, just before the deadline midnight Sunday, mainly making changes to automotive duties, labor standards, dispute resolution and reopening some portions of the Canadian dairy market to U.S. producers.

The deal could succeed the North American Free Trade Agreement. Congress is not expected to debate the agreement until 2019.

The Trump administration set that deadline to make sure the text of the agreement would be released 60 days before signing it into effect, and to get outgoing Mexican President Enrique Pena Nieto’s signature before he leaves office.

Trump and Nieto agreed to a bilateral deal in late August, and Trump invited, and later threatened, to leave Canada out of the pact.

Trump railed heavily against NAFTA while campaigning for the presidency in 2016, calling it “the worst trade deal maybe ever signed anywhere.”

He previously threatened to pull the United States out of the agreement if Canada and Mexico refused to negotiate a new pact.

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Iowa’s U.S. Sen. Joni Ernst, a Republican, praised the deal on Twitter Monday morning, writing that “our farmers need stability and access to markets.”

Sen. Chuck Grassley, also a Republican, wrote on Twitter that the agreement looks “very favorable to American + Iowa agriculture” upon first read, but said he would take a deeper look soon.

Gov. Kim Reynolds said in a statement an updated version of NAFTA would strengthen trade ties to Canada and Mexico, and provide better gains for farmers.

“As a steadfast champion for Iowa agriculture and Iowa products, I will continue to advocate for increased opportunities to market our products around the globe,” she said. “It is my hope the momentum generated today will provide more certainty for our farmers during this harvest.”

‘Keep the pressures’

The deal does not lift the United States’ 25 percent and 10 percent tariffs on imported steel and aluminum respectively, which caused Mexico in June to levy a 20 percent tariff on U.S. pork and other products in response.

That could lead to ongoing pain for pork producers across the United States, as Mexico is this country’s largest pork export market, and the United States already are facing a 25 percent tariff from China.

Iowa’s $6.5 billion pork industry is by far the largest in the United States, dwarfing runner-up North Carolina’s at just under $2.1 billion.

Iowa State University economist Dermot Hayes said the Trump administration can lift its tariffs at any time, but he thinks it could hold off on that to try to push legislative action on the USMCA.

“It would make sense to me that if you want Congress to act, that you keep the pressures in place caused by the metal tariffs,” he said.

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However, Hayes said the USMCA — along with news last week that the White House plans to open talks with Japan on a free-trade agreement, and its signing of a new agreement with South Korea — could signal a shift in U.S. trade policy toward resolving old disputes.

Drew Mogler, public policy director for the Iowa Pork Producers Association, said the group is encouraged by the deal as a sign of progress toward reducing trade tensions among the three countries.

However, pork producers will continue to put pressure on federal lawmakers and the Trump administration to come to terms with Mexico and Canada on the steel and aluminum tariffs as Congress debates the USMCA, he said.

“We’re not going to necessarily stop sending our message to Washington that they need to move forward on this deal,” he said. “We see this as a positive announcement, but we know work’s not done.”

The deal buoyed a rally in the markets Monday. The Dow Jones industrial average gained 192 points in the day’s trading, to close at 26,651, and Bloomberg’s generic futures price rose 9 cents, to $3.65, per bushel for corn and rose 12 cents to $8.57 per bushel for soybeans.

Jim Nemitz, Midwest Strategic Investments president in Hiawatha, said the deal gives traders some level of optimism that trade tensions will cool over time, along with some short-sellers deciding to cover their positions in advance of various commodities rising in price.

Corn and soybean prices could see a longer-term boost if Mexico drops its pork tariffs, as demand for pork exports would drive up the price of corn and soy feed.

However, Nemitz said it’s not clear how much Monday’s announcement can keep optimism up, or if the agreements will turn into lasting policy.

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“I think it’s going to be a while until we know the true effects of this,” he said. “If it doesn’t take effect until at least the first of next year, if we don’t know the effects of China going to Canada to get pork or anybody else, we’re talking more than a couple months. It’s going to be an unknown for two to six months before we know.”

l Comments: (319) 398-8366; dan.mika@thegazette.com

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