Economists: USMCA will return to limelight

Headlines have swirled about other challenges in agriculture, and the United States-Mexico-Canada Agreement soon will become the latest front-burner issue.

USMCA was established in 2020 to replace the North American Free Trade Agreement. Guy Allen, a senior economist with the International Grains Program at Kansas State University, said North America’s trade pact is entering a critical review period at a time when cross-border commerce is strong, but political and policy uncertainty is rising on all three sides.

Recently, President Donald Trump, who pressed for USMCA during his first term, raised eyebrows with comments about the agreement.

Trump has said he is “not looking to renew” the pact and has argued the United States should not need imports from Canada or Mexico, even as both countries have become its top two agricultural markets, together buying more than a third of U.S. farm exports, Allen said.

“Farm groups and major business associations warn that letting the agreement drift toward termination would destabilize a trading zone that underpins nearly $1.6 trillion in annual regional commerce,” Allen said.

Luis Ribera, a professor and Extension specialist at Texas A&M University, said agriculture is rightfully watching how it unfolds.

He emphasized the economic benefits of USMCA and NAFTA, highlighting increased trade and reduced tariffs.

“Some corn producers in Mexico, they don’t like it because we’re (U.S. farmers) so efficient at producing corn and we send corn to Mexico that is a lot cheaper to produce,” he said. “But at the same time, it opened opportunity for fruits and vegetables coming from Mexico to the U.S. There’s going to be winners or losers, but when you look at the overall picture, it’s been very successful.”

Recently, the Agricultural Coalition for USMCA released a Purdue University study that found North American trade has helped lower U.S. food prices.

The study specifically found tariff reductions under North American trade agreements have helped lower food prices for U.S. households, generating estimated savings of approximately $700 per year in today’s dollars—equivalent to roughly 7% of total household food expenditures.

U.S. consumers have the most affordable food in the world, Ribera said, as they spend only about 7.5% of their disposable income on food for home consumption.

“We have the cheapest in the world and we can have anything that we want year-round,” Ribera said. “We don’t have to wait for it. The quality is really good, and the prices, they don’t vary much, so consumers benefit.”

The Trump administration’s strategy is to leverage the U.S.’s large market, preferring to negotiate bilateral deals, Ribera said, adding he hopes for the ratification of USMCA to provide stability and clarity for producers and the supply chain.

Agricultural and business interests are watching all the scenarios, said Chad Hart, a professor in the Department of Agricultural Economics at Iowa State University.

“When you look at our economy in general, Mexico and Canada became our two largest trading partners and I would argue the reason that has developed is because of NAFTA, long ago, which morphed into the USMCA that we have today,” Hart said. “Having those more open borders with very limited trade disruption has made a very cohesive North American market that has benefited all three countries.”

Business side

Businesses are watching how it unfolds, too, Hart said. Companies have designed their processes to fit a larger North American market, and the benefit of NAFTA and USMCA was that commerce could move more easily across the borders of all three countries, just as it has for their agricultural counterparts, he said.

“To mess that up is to create a lot of additional uncertainty into the business environment that is already dealing with the disruptions that tariffs first did and now the ramifications of the Iran war,” Hart said.

Republican farm-state lawmakers, including close allies of the president, have been advocating for Trump to retain USMCA, Hart said, but only time will tell whether that effort succeeds.

Ribera said success for businesses and companies requires a multi-year investment. Not knowing what’s ahead will stop or delay investments in plants. It is a question he frequently receives from media outlets.

“What’s the end game that this administration wants?” Ribera said. “If the end game is to lower tariffs across the board, I think that’s, that’s very positive. Tariffs are a tax and the lower the tax that we have, the better for consumers and makes markets more competitive.”

It does come with an important caveat.

“If the end game is to use tariffs as a way to exercise power and collect money, that’s not a good way to do it,” Ribera said.

Politics at play

On Capitol Hill, the House Agriculture Committee has signaled broad bipartisan support for keeping USMCA in place, Allen said. Farm and food groups told lawmakers duty-free trade within North America is critical for exports and supply chain integration, and one witness warned failure to renew the agreement would be catastrophic for U.S. agriculture.

At the same time, members from both parties are calling for targeted fixes, including stronger tools against surging Mexican specialty crop imports and tighter enforcement of Canada’s dairy tariff-rate quotas, he said.

“The July 1 joint review will not produce a full renegotiation on its own, but it will start a decade-long clock and frame the choices for governments, exporters and producers across the continent,” Allen said. “Over the next several months, the key questions for USMCA will be whether the three countries can agree on incremental changes that address sector-specific concerns or whether escalating demands and threats of withdrawal push the pact into a more uncertain and potentially volatile path.”

Trump relishes the opportunity to negotiate, and that’s when politics enters the equation, Ribera said. The U.S. has considerable leverage because it is the largest market in the world, with 330 million people with purchasing power.

The U.S. also has about 25% of the world’s money, so other countries want to sell products here, and the Trump administration understands that advantage, he said.

“Having that leverage is huge,” Ribera said. “When you have the keys to the largest market in the world and now, they’re trying to exercise that leverage, try to move from multilateral to more bilateral agreements.”

Mexico and Canada are not likely to appreciate that strategy because they have benefited from the multilateral agreement, he said, but those countries will continue to negotiate.

Dave Bergmeier can be reached at 620-227-1822 or [email protected].