By Matt Dalgleish | Source: USDA
The Trump administration has signalled a desire to renegotiate the North American Free Trade Agreement (NAFTA), first established in 1994, but so far discussions between Mexico, Canada and the US have been limited and the details of US intentions have been scant. This article take a look at the recent history of beef volumes traded in and out of the US and how a NAFTA shakeup may play out on the world stage for the beef trade.
Figure 1 highlights the top five sources of beef product in volume terms for the 2016 season in percentage terms with Australia, NZ and the other two NAFTA participants dominating the list. While Australia still holds the top spot, figure 2 shows that the volumes from down under in percentage terms are the lowest they have been in five years. This is somewhat unsurprising, given the tighter domestic supply in Australia over the last year, and it is expected that beef trade volumes from Australia to the US is likely to continue to be subdued in the current season.
Figure 3 demonstrates how the NAFTA agreement has encouraged the beef trade between the three participant countries with Mexico and Canada featuring prominently, not only as a source of beef product into the US, but also as one of the top five destinations for US beef exports. The importance of the ebbs and flows of the US cattle market on Australia highlighted by the fact that the top two export destinations for the US, Japan and South Korea, feature prominently in Australia’s beef export trade. So, Australia isn’t just the USA’s biggest beef supplier it is also its biggest international competitor into two key Asian markets.
While the Trump administration’s relations with Canada appear mostly cordial, there have been bouts of simmering tensions between the USA and Mexico. Off the cuff comments of potential tariffs of 20% being placed on Mexican imports into the Unites States to help pay for a “wall” at the border have done little to ease the situation.
Similarly, comments by President Trump that NAFTA needs to be renegotiated because the deal is “unfair” to America, despite the export of many agricultural products from the US to Mexico/Canada increasing dramatically since its inception have caused concern among some sectors of the US agriculture/trade establishment. Indeed, the logic behind the decision to pull out of the Trans-Pacific Partnership (TPP) by Trump was questioned by the National Cattlemen’s Beef Association in the US which claimed that not participating in the TPP would mean the America would be “unable to take down tariffs to Japan, losing beef markets to Australia”.
Despite the political rhetoric sometimes used to the contrary, it is a widely-held theory in economics that (in the long run) free trade benefits all participants. Clearly, in terms of the US beef trade NAFTA appears to be of benefit to all concerned, judging the two-way flows that exists between the US, Mexico and Canada. Although the populist comments from Trump suggest that he will seek only favourable trade deals for America going forward, this is not how successful negotiations on trade get settled upon.
The somewhat slower pace of the release of actual trade policy seems to indicate that the Trump administration is going to proceed with caution, so as not to upset the apple cart of global trade. Next week we will take a look at beef exports from a local perspective and ponder on what some of the pending trade deals and trade tensions might mean for Australia.
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