Two defining events transpired in 2018 which made the passage of the USMCA crucial. On Jan. 23, President Trump withdrew the U.S. from the Trans-Pacific Partnership, a trade deal with 11 other nations including Canada, Mexico and Japan. TPP not only gave us an updated NAFTA, but it also gave us a deal with Japan and eight other nations in southeast Asia.
Then, the U.S. began a trade war by issuing tariffs on U.S. entities buying Chinese goods and U.S importers of aluminum and steel.
The negative impact on manufacturers, farmers and consumers — through counter-tariffs on American farm products and a weakened competitive position in the world — is the foremost reason we must pass USMCA now. In short, President Trump’s trade policies have hurt so far, and we need a win.
Many economists have criticized the policies of this administration as protectionist, and while I’m not an economist, I can learn from history. So, let’s talk Smoot-Hawley for a moment.
The Smoot-Hawley Tariff Act of 1930 increased tariff rates on over 900 items an average of 45%. The intent was to protect battered farmers and businesses suffering the early years of the Great Depression. What it did, however, was contribute significantly to deepening the Great Depression, increasing prices on food for American consumers and inputs for American manufacturers.
Higher prices meant we sold less around the world, took in less revenue and finally could not afford to buy much of anything.
In May 2019, the National Bureau of Economic Research said this, “The recent tariffs, which represent the most comprehensive protectionist U.S. trade policy since the 1930 Smoot-Hawley Act … ranged from 10 to 50 percent on about $300 billion of U.S. imports — about 13 percent of the total. Other countries responded with similar tariffs on about $100 billion worth of U.S. exports.”
Canada and Mexico are our largest trading partners. Kansas farmers and manufacturers exported over $4 billion in goods & services to Canada and Mexico in 2018. Our neighbors to the north and south have been our best trade partners for more than two decades, creating one of the largest trading blocs in the world. Our supply chains are integrated, so forcing policy to increase costs in Mexico will impact the bottom line of companies in the U.S. We are in this together.
That’s not to say we should not help each improve labor and environmental conditions. The USMCA does that and much more. It is the first trade agreement with a small business chapter, provides protection for digital data and cross-border services and even sought to reduce or eliminate any remaining tariffs, like dairy exports to Canada.
As Congress returns to session, I urge our representatives to pass this modernized agreement. Give Kansas farmers, ranchers and small businesses a tool to compete.
Pass the USMCA now. We need a win.
Karyn Page is the president and CEO of Kansas Global Trade Services.