AMERICAN PORK: AN EXPORT POWERHOUSE
“The U.S. pork industry is the poster child for expanded trade.”
Nicholas D. Giordano
May 25, 2017
CONTEXT AND COMMENT
Nick Giordano is the Vice President and Counsel for Global Affairs at the National Pork Producers Council. He was the last of nine speakers at the GBD NAFTA event on May 25, NAFTA, From Car to Carrots. As we noted in the TTALK Quote published earlier today, the fear that the United States might withdraw or otherwise scrap NAFTA has lessened in the last couple of months.
That is a welcome development. So too is the clear and steady movement toward an orderly process of renegotiating and upgrading NAFTA. The most recent step in that process was taken earlier today [July 19, 2017] when USTR announced that John Melle, Assistant USTR for the Western Hemisphere, will be America’s Chief Negotiator for the NAFTA negotiations and that the first round of talks will be held in Washington from August 16 to August 20.
As the NAFTA countries prepare for that first round, it is important to keep in mind that, as important as NAFTA is for the United States, it is as or more important for Canada and Mexico. Each of the three NAFTA countries has an enormous stake in NAFTA and in the success of the NAFTA negotiations.
That said, the picture Nick Giordano painted back in May of NAFTA and the U.S. pork industry was an exceptionally useful illustration of that point from the perspective of one segment of the North American economy, American pork producers. After transcribing his remarks, we could not decide what to include and what to cut. So here in its entirety is the speech Mr. Giordano gave at GBD on May 25. (The inserted headlines and added emphases are ours.)
REMARKS OF NICK GIORDANO — MAY 25, 2017
Thank you, Dave.* Thanks to Judge and the Global Business Dialogue* for having the National Pork Producers Council participate in this important event. It’s a great pleasure to be up here with my colleagues from agriculture, who I’ve gotten the opportunity to work with on various issues over the years.
As David knows, I’ve never met a microphone I didn’t like. Don’t worry. I’m going to make your job easy. I’ve written my comments out. So, I can keep us on schedule here. So we can get to questions and Judge can get everybody out in a timely manner.
ON THE COUNCIL
The National Pork Producers Council is a federation of 43 state pork producer organizations, representing the national, global interests of 60,000 U.S. pork producers, who generate $23 billion annually in farmgate sales. The U.S. pork industry supports an estimated 550,000 domestic jobs and generates more than $39 billion a year in economic activity.
U.S. PORK EXPORTS
The U.S. pork industry is the poster child for expanded trade. As recently as 1995, the United States imported more pork than it exported. But, in the past ten years, thanks to new market access through trade deals going back … before NAFTA — the U.S. pork industry, on average, has been, the past ten years, the top pork exporting nation in the word.
In any given year, we ship pork to more than 100 countries. But, because of trade deals, and specifically FTAs, we ship more U.S. pork to the twenty nations with which we have FTAs than to the rest of the world combined. Exports contribute significantly to the bottom line of all U.S. pork producers, adding more than $50 to the value of each hog marketed last year, when about $6 billion worth of U.S. pork was exported.
It’s been noted [that] on May 18th, the Administration notified the Congress of its intention to enter into negotiations with Mexico and Canada to modernize the NAFTA. Today, NPPC [the National Pork Producers Council] released a paper on the NAFTA. The paper is intended to provide background and insights regarding benefits generated by the NAFTA.
In addition, the paper details the costs associated with erecting new import barriers through renegotiation or withdrawal from the NAFTA. The paper is available on our website, nppc.org. The focus of the paper is economy wide, but today I’ll limit my comments, for the most part, to the pork sector. Mexico and Canada represent, in value terms, our second and third largest export markets for pork.
In 2016, we shipped $1.4 billion in pork products to Mexico and $800 million to Canada. Together, these two markets represent 36 percent of our global pork exports and over 15 percent of our total pork production.
THE NAFTA RISKS
According to Iowa State University economist Dermot Hayes, who Judge has had as a panelist in past GBD activities, U.S. pork exports to Mexico have created more than 9,000 U.S. jobs. Dr. Hayes, who, I might add, has forgotten more about the global pork industry than most people will ever know. According to Hayes, if Mexico were to place a 20 percent duty on our pork, and allowed the EU and Canadian pork duty free access, which is likely to happen if there is a termination or duties put on pork, then we would — the United States — would lose all of the Mexican market.
In his assessment, Professor Hayes also looked at the possibility of U.S. pork finding alternative markets and concluded that the U.S. pork industry would be left with a net loss of about 600,000 tons or 5 percent of our production. This would cause a 10 percent reduction in live hog prices. At today’s hog prices, that’s about $14 per animal. Now, with 118.3 million hogs harvested in the United States last year, that means the loss of the Mexican market would translate to an aggregate industry loss of about $1.7 billion annually.
A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Now, make no mistake, pork producers do and will support updating and improving the NAFTA but if, and only if, duties on U.S. pork remain at zero and pork exports are not disrupted. The prospects of going back to pre-NAFTA tariffs are daunting, not just for pork producers but for the entire U.S. economy. And we have history as our guide.
LESSON FROM HISTORY
After the stock market crash in October 1929, when unemployment began to rise, Congress decided it would be a good idea to impose additional tariffs on imports “to save jobs.” Despite the pleas of over 1,000 mainstream economists for President Hoover to veto the bill, the so-called Smoot-Hawley tariffs were introduced in 1930. Jobs were immediately lost in trade related fields and beyond, including dock workers, transportation, distribution etc. And within three months, unemployment nearly doubled to 14 percent. Over the next two years, unemployment soared to 27 percent, as jobs were lost to other factors, including higher inflation, reduced disposable income, and, of course, foreign retaliation against our exports. The Great Depression was then in full force, and became global. The rest, as they say, is history.
COSTS OF FAILURE
Now, I’m not suggesting that a NAFTA renegotiation gone awry would result in another great depression, but it could result in unintended consequences. Mexico will elect a new president in July 2018. The NAFTA renegotiation could have a significant impact on both the presidential election in Mexico and the long term relationship between our two nations. The NAFTA has created jobs to the benefit of both the United States and Mexico. In 1994 our trade with Mexico was roughly in balance at about $50 billion each way. By 2016, our exports to Mexico had nearly quintupled to $231 billion, and these now support some 6 million jobs.
And while imports to the United States from Mexico were $294 billion, those too supported millions of U.S. jobs, and nearly 40 percent of Mexican imports include U.S. content. In short, NAFTA created jobs in both the United States and Mexico. Now, I won’t deny that jobs did go to Mexico as the result of plant closings, but it’s misleading to say that trade under NAFTA resulted in a net loss of jobs in the United States.
We should also keep in mind that as a result of NAFTA, Mexico made substantially deeper cuts in tariffs on U.S. goods than did the U.S. on Mexican goods. If NAFTA were to be terminated, Mexico would have the right to reimpose those much higher tariffs on our goods, thus making the trade deficit bigger.
Mexico has free-trade agreements with many other countries and is pursuing even more. Without NAFTA, those countries would immediately secure huge competitive advantages over potentially thousands of U.S. products, including pork of course, in the Mexican market.
NAFTA is an old trade agreement–23 years. But it has accomplished a great deal. And, it certainly can be modernized. But, if I’m making one point [and] you’ve been listening, there are enormous risks associated with the notion that withdrawal from NAFTA could be an attractive alternative if efforts to negotiate a more modern agreement fail. Thank you.
NOTES, SOURCES AND LINKS
*On Referenced Personalities. Dave Salmonsen of the American Farm Bureau Federation served as moderator for the panel discussion on agriculture. Judge Morris is the president of the Global Business Dialogue, which hosted the event.
The Carrots Part takes you to the YouTube video of the full agriculture panel at GBD’s May 25 event on NAFTA. This was the source of today’s featured quote and the above transcript.
First Round Announced is a link to today’s USTR press release, which included both the dates for the first round of negotiations and the name of the U.S. Chief Negotiator for the NAFTA talks, namely, John Melle.
Originally published on July 19, 2017, as TTALK Quote No. 44 of 2017.