Mexico threatens a trade war with the US and Canada

Relations between the United States and Mexico are on the rocks again, but it is not because of a fast-talking American politician who insults the neighbors. (That was Donald Trump, in case you forgot.) The latest confrontation is a looming commercial conflict sparked by Mexican President Andrés Manuel López Obrador, aka AMLO.

Last month, Mexico’s Deputy Agriculture Minister Víctor Suárez told Reuters that his country plans to move forward with a 2020 decree aimed at phasing out genetically modified yellow corn. The target date for implementation is 2024. AMLO wants Mexico to stop purchasing and producing food that relies on the use of the herbicide glyphosate and return to consuming only food produced with non-GM corn.

This is going to be a problem for all of North America. Mexico annually buys 16.8 million tons of yellow corn, mostly for feed, from the United States. Mexico is the second largest importer of corn in the world, after China, and most of it is supplied by US farmers. It is the second largest corn export market for US growers. Agriculture Secretary Tom Vilsack told RFD-TV, a US rural news outlet, in late September that his team has been trying to “convince” Mexican officials that a ban on genetically modified corn would be “disastrous” not only for American agriculture , but also for agriculture in Mexico and for Mexican consumers.

That is no exaggeration. According to a study released Sept. 19 by Virginia-based business management consultant World Perspectives Inc., the negative effects of a Mexican ban on GM corn would be devastating—both at home and abroad.

The study was done for a multinational group of food and agricultural interests, including Mexico’s National Agriculture Council and the Mexican Association of Food Producers. It found that over a “10-year forecast period, the Mexican ban on GM corn would cause the U.S. economy to lose $73.89 billion in economic output and gross domestic product (GDP) would decrease by $30.55 billion.” In the first year of a ban, the US corn industry alone would suffer a net loss of $3.56 billion, followed by a loss of $5.56 billion in the second year. More broadly, via a ripple effect, “the United States would lose 32,217 jobs annually, with labor income falling $18.38 billion.”

The Canadian economy would also suffer, losing $92.85 million in economic output over 10 years.

The ban would help producers of non-GM corn, as the price would increase by 48% in the first year, the study shows. Over 10 years, the price of non-GM corn would increase 19%.

But most Mexicans would suffer much. Mexican GDP will fall by $11.72 billion over 10 years, the study estimates, and output will fall by $19.39 billion. The damage would extend beyond agriculture, with a projected annual loss of 56,958 jobs, reducing labor income by $2.99 ​​billion.

Mexican access to protein would be reduced “due to a 13.7 percent increase in feed costs,” which would push up supermarket prices. A 66.7% increase in poultry prices would be hard on consumers and eggs could “become a luxury item” for the poor.

Mexican consumers would likely choose more affordable imported meat and poultry raised on GM corn, hurting domestic livestock producers. There would also be a cost to the environment, according to the study, because “non-GM crop production forgoes the benefits of higher yields and reduced land use in addition to lower chemical uses and no-till practices that protect soil and lower carbon emissions.”

Mexico has been vague about how it intends to implement the ban. But Mr Suárez’s comments have raised concerns among growers, food producers and consumers in all three countries. On October 19, Mexico issued a new anti-inflation decree that removes import duties for the next three months on a list of agricultural products. It used the moment to reiterate its commitment to ban glyphosate and GM corn “in the diet of Mexican women and men, implying that [corn] with these properties cannot be imported.”

This view is entirely consistent with the anti-scientific bias that the AMLO administration is known to harbor. But the country’s obligations to keep the market open under the U.S.-Mexico deal, an updated version of the 1993 North American Free Trade Agreement, are hard to come by.

In his interview with RFD-TV, Mr. Vilsack that he hopes Mexico will recognize that under the USMCA “they have a responsibility to respect the science.” Otherwise, the US and Canada will likely take the matter to an arbitration panel. If Mexico loses, its trading partners would have the right to retaliate by imposing new tariffs on Mexican exports.

Trade policy is said to produce winners and losers. But if AMLO wins in this case, almost everyone will be losers.

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