Iowans: USMCA Is A Win, But Can It Boost A Struggling Farm Economy?

Photo by Julie Fleming

President Donald Trump will soon deliver on a signature goal of his presidency, a goal he would not have reached without an assist from an unlikely source: House Democrats.

The United States-Mexico-Canada trade agreement (USMCA) was approved by the Democratic-controlled House of Representatives in December and today by the Republican-led Senate. With Trump’s signature, it will become law.

Presidential candidate Bernie Sanders was among the 10 senators who voted Thursday morning against the legislation.

Republicans chided Democrats in 2019 for not moving quickly enough to pass USMCA, a trilateral trade pact that updates and improves upon the North American Free Trade Agreement (NAFTA) of the 1990s. But the Trump Administration’s USMCA draft, received by the House early last year, didn’t go far enough to stop the bleeding of American jobs into countries with poor labor and environmental standards, thus requiring further work.

“He [President Trump] talked a lot about how NAFTA was bad for our workers and we lost jobs — and we did, we lost thousands of jobs to Mexico because of their weak labor standards and environmental standards,” said Congresswoman Abby Finkenauer, in a recent interview with Starting Line. “Unfortunately, the original USMCA that was delivered to us didn’t actually go far enough to address those issues. So, what we ended up doing, now there’s real enforcement.”

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Encouraging American companies to keep jobs in the United States, and perhaps move some back that previously were relocated, is “the real goal” of Democrats’ labor provisions in USMCA.

“The president had talked a lot about that in 2016 and we actually, given the work that House Democrats did to USMCA and the groups that worked directly with the trade representative, are actually able to have a deal that does what the president had originally talked about and intended,” Finkenauer said.

Katie Hall, director of government affairs at the Iowa Institute for Cooperatives, said labor provisions were “the No. 1 thing that came up as a concern for congressional folks” when she visited D.C. last summer.

In Iowa, much of the conversation around USMCA centered on farmers and the need for more certainty with their top trading partners, Canada and Mexico, as the Trump Administration threatened to pull out of NAFTA and continuously lobbed new tariffs at China.

“We think that USMCA is a good improvement, any improvement on existing free and open trade is a win,” Hall said. “I think in the ag economy, you’ll have a hard time finding someone who doesn’t think USMCA is mission critical.”

Scott Henry, a fourth-generation family farmer in Story County, said he was “heavily involved” and took an “active role in lobbying for the USMCA” through a national organization called Farmers for Free Trade.

With much of the international attention trained on Trump’s trade war with China, Henry said, Iowa farmers often felt forgotten.

“Our view is that we’re glad USMCA got to the finish line because that’s the one that’s most important to us, but we still are kind of treading cautiously as to how supportive we are of the current administration’s strategy on trade,” Henry said. “We just don’t really know what it is, and I think everybody’s asking that question.”

Trump’s threats to take the United States out of NAFTA if a renegotiated trade deal was not approved “somewhat” impacted Iowa’s corn and soybean markets, said Ray Gaesser, a Corning farmer and former chairman of the American Soybean Association.

“Initially when the discussions began to replace NAFTA with USMCA, I know that Mexico began to look at some of our competitors who grow soybeans and corn in South America and imported a little bit of those products into Mexico, so the corn and soybean market was impacted somewhat,” said Gaesser.

“Having a little more certainty recently in the process of USMCA really alleviated those concerns,” he said, “but you never want to encourage our customers to look somewhere else.”

Agriculture is a “cyclical” business, Gaesser said, with the latest downturn beginning around 2014 and showing few signs of slowing down.

“I think that’s the tough part,” Henry, the Story County farmer, said. “Are we going to be able to say that we’re going to see a 20% bump in our soybean prices because of this? I don’t know … all we can really speak to is that ever since we started negotiating NAFTA and decided to take on a trade war with China, that we have seen a 20% drop in soybean prices, and we’ve seen farm income, which was already at 20-year lows or more, just continue its trend downward.”

Across Iowa, soybean processing facilities managed by Landus Cooperative shipped 14-22 million bushels of grain to Mexico during Fiscal Year 2018-19. On average, Landus said, it ships a grain train to Mexico every seven to 10 days.

Ron DeJongh, Landus’ chief commodity marketing officer, said he did “not expect a significant impact” on their business as a result of USMCA.

“It really just maintains the status quo of what we’ve been experiencing, as far as ease of trade with Mexico as a farmer cooperative,” DeJongh said.

The challenge most farmers face, he said, is a supply and demand problem.

“The reality is that the U.S. farmer, the Iowa farmer and the global farmer all are continuing to become more and more efficient and more and more productive, at a time when demand is not keeping up with the supply,” he said. “You add on to that African swine fever, where you took soybean exports to China from their total consumption of 95 million tons down to about 85 million tons, that is going to have a negative impact on prices.

“Realistically, I think it’s going to continue to be challenging as long as we increase productivity going forward without seeing a significant increase in demand,” DeJongh said.

Hall, with the Iowa Institute for Cooperatives, described “a lot of caution in the industry, folks trying to be realistic without being pessimistic about the future and what it holds.”

“I do know that we’ve got farmers that are struggling,” she said, “farmers that are maybe younger, newer farmers that didn’t have the collateral necessarily that some of our older farmers did, that are now having to exist because they can’t make it work with the rent prices the way they are, with machinery prices the way they are, and so they’re existing the market.”

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Henry, the Story County farmer, wonders what the long-term impact of Trump’s trade negotiations will yield and whether “significant leverage” already has been lost, not only for the agricultural industry in the U.S., but around the world.

” … all it’s been is just negative headline after negative headline that’s caused markets to tank for American Midwest farmers, that when we get to the end of this road, what’s our new position going to be?” he said. “I don’t know if it’s really going to be that much different.”

As Congresswoman Finkenauer put it: “The issues that we’re facing are not done, and anybody who thinks they are isn’t paying attention.”

“I’m committed to continuing to focus on trade,” Finkenauer said, “to focus on what needs to be done for our state, and it’s a complicated process, but it’s an important one that we need to continue to pay attention to and make sure that the administration doesn’t ignore what’s happening on the ground.”

 

By Elizabeth Meyer
Posted 1/16/20

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