US-Mexico trade tensions threaten US farmers

In response to US president Donald Trump’s calls to renegotiate the North American Free Trade Agreement (Nafta), government officials in Mexico have introduced legislation to halt corn imports from the US. 

Under the proposed legislation, Mexico would stop buying corn from US in favour of corn produced in nearby Latin American markets such as Brazil and Argentina.

The legislation comes at a time of tense relations with the the Trump administration. Besides renegotiating Nafta, Mr Trump has promised to impose a 20% tax against Mexican imports as a means of funding the creation of a new border wall, which led to the cancellation of Mexican president Enrique Peña Nieto’s visit to the US in February.

Although Mr Trump has criticised Nafta in the past as detrimental to US companies, US corn farmers have benefited tremendously from this tariff-free multilateral arrangement. Most notably, Mexico’s purchases of US corn have risen from an estimated $390m in 1995, when Nafta was first introduced, to $2.4bn in 2015, according to a report by the Agricultural and Applied Economics Association.

Jaya Jha, a professor of economics at Colby College, says Mexico imported about 25% of the US’s corn production, which makes it the world’s largest consumer of US corn.

In addition, corn is one of the most important US agricultural exports in terms of value. According to Ms Jha, it accounted for about 10% of the total value of all US agricultural exports in 2016, so Mexico’s proposed legislation will have consequences for the overall US agricultural market.

Mexico also has the capacity to significantly harm other major US agricultural exports because it is also the largest importer of US rice, poultry, pork and wheat.

This increasing tension between the US and Mexico has led to speculation that a trade war between both sides is looming. However, the costs of such a conflict would likely be punishing for both Mexican and US exporters. As a result, there are doubts over whether the Mexican government will actually pursue this legislation, or if it is just posturing.

“I would actually be surprised if Mexico imposed such a ban,” says Ms Jha. “But if it does, the implications would be significant for US farmers.”