Re-Blogged From Stratfor
Grant Wood’s 1930 painting “American Gothic” is quintessential Americana. The austere depiction of a farmer and his land evokes the agrarian core that has long underpinned the United States’ geopolitical strength. Today, the U.S. agricultural system is still central to the country’s success, though it looks much different now than it did in Wood’s time.
Small family farms have given way to massive industrial operations, and the agricultural sector as a whole has become far more globalized. In fact, despite its reputation as the “breadbasket of the world,” the U.S. agricultural sector depends as much on other countries as they depend on it. The United States exports more than 20 percent of its agricultural production by volume, and export revenues account for about 20 percent of net farm income. As productivity improves each year with help from technological advancements, moreover, it will outpace domestic demand, leaving exports to sustain the U.S. agricultural sector. But the extent to which they can depends in large part on the future of international trade deals such as NAFTA.
U.S. agriculture lobbies have long advocated trade agreements to keep the country competitive with other major producers. Since the mid-20th century, the General Agreement on Tariffs and Trade and subsequent deals have sent the value of agricultural exports from the United States soaring. NAFTA gave U.S. agriculture another boost when it took effect in 1994. The deal opened a massive market in Mexico to corn producers in the American Midwest, while also providing American consumers with a wealth of fruits and vegetables from their southern neighbor. It was hardly surprising, then, that the U.S. agricultural sector rallied behind the Trans-Pacific Partnership agreement before it fell apart. Nor is it surprising that the United States’ farming industry is wary of the current administration’s plans to renegotiate NAFTA.
A Vulnerable Sector
Of all the sectors that have benefited from NAFTA, the agricultural industry is the most vulnerable to changes in its terms. Though agricultural exports represent only about 8 percent of the United States’ exports to Mexico, they would account for roughly 42 percent of the total increase in tariffs on U.S. exports in the unlikely event that NAFTA were revoked. (Meat and sugar would be among the hardest hit exports from the United States, while sugar and vegetables would be two of the imports most affected by the reintroduction of tariffs.)
Mexico is already working to expand its trade ties with South American countries such as Brazil and Argentina to offset the repercussions that a NAFTA overhaul would have on its agricultural imports and exports. And the U.S. agricultural industry will likewise have to deal with the fallout of a revised trade deal. Farm states — especially those, such as Texas, that do more trade with nearby Mexico — would feel the effects of the changes most acutely. After all, much like manufacturing, agricultural processing depends on intricate cross-border ties. Cattle born in Mexico, for instance, are often raised and slaughtered in Texas for export back across the border.
Rehashing a Familiar Problem
This won’t be the first time a disagreement in the NAFTA bloc has targeted the United States’ agricultural sector. In 2009, Mexico imposed tariffs on specific facets of the U.S. agricultural industry during a dispute about trucking. By targeting individual congressional districts, including parts of Oregon and California that rely on agricultural and processed food exports, Mexico City pressured Washington into complying with the trucking ruling.
But agricultural communities are losing their political clout; in 2006, researchers at Montana State University found that farming is the primary economic activity in just 40 of the United States’ 435 congressional districts. The agricultural lobby has atrophied enough, in fact, that the last farm bill — a hefty piece of legislation proposed every five years to fund the country’s agricultural activities — failed in 2013, before Congress eventually passed a diluted version. Spending on lobbying activities for agribusiness, too, has declined in recent years, though it is still higher than it was at the start of the 21st century.
An Uncertain Future
Considering their waning influence in U.S. politics, the country’s agricultural producers were particularly nervous as President Donald Trump took aim at their two most important trade partners, China and Mexico, during his campaign for the presidency. Several agribusinesses and farming concerns joined together to write a letter to the president after his inauguration in January outlining the importance of open trade to the agricultural sector. If Trump’s efforts to correct the United States’ trade imbalances prompted countries such as China or Mexico to curtail their imports of U.S. agricultural products, for instance, the American farming sector would suffer disastrous consequences. So far, though, the worst-case scenario appears unlikely. Geographic constraints, coupled with 20 years of progressive integration in numerous industries, including agriculture, will limit the Trump administration’s options to deliver on its promises to amend or discard international trade deals.
That’s good news for U.S. agriculture. Domestic demand alone would fall far short of supporting production in several agricultural sectors. Without China and Mexico, the pork, beef, grain and dairy industries would have no clear alternative market to turn to that could match those countries’ demand, and excess supply could cause prices to plummet. But until the negotiations over NAFTA are complete, the U.S. agricultural sector’s future will be tinged with uncertainty.