2/3/20 USMCA Vote

Rep. Pete Visclosky, Democrat for District 1, was the lone Indiana politician to vote against the new trade deal. Republican Rep. James Baird, who represents the Greater Lafayette Area, voted in favor of the agreement.

While the implications for automobile manufacturers are less encouraging, Indiana agricultural producers may stand to gain from the new United States-Mexico-Canada Agreement, a trade deal signed into law on Wednesday by President Donald Trump.

The USMCA is the Trump administration’s attempt to address perceived flaws in the North American Free Trade Agreement, the deal that previously governed exchange between the three countries since 1994. Trump described NAFTA as a “nightmare” and said the new plan will benefit two domestic industries especially: dairy farming and automobile manufacturing.

Doug Leman, an executive director for Indiana Dairy Producers, said he was supportive of the USMCA because it opened a larger portion of the Canadian market to U.S. farmers. He spoke about a Canadian government classification system that still subjected American items to tariffs — taxes on traded goods — meant to advantage Canadian producers by limiting international competition, despite NAFTA.

“I think we’ve been waiting on this for quite a while — personally, I’ve been pushing for it by talking to Indiana congressmen,” Leman said. “Reciprocal trade is OK if it’s fair. I think for dairy producers, that was a big part of this deal with Canada.”

Leman also accused Canadian producers of exploiting a loophole in NAFTA that allowed them to engage in dumping — a practice in which companies dump excess inventory in foreign markets at lower prices than they offer domestically. Dumping can be grounds for retaliation, such as imposing tariffs. Canadian dairy producers have denied all previous dumping allegations.

“They were cheating the system, and there was nothing we could do about it,” Leman said.

Purdue international trade professor Anson Soderbery confirmed that NAFTA had in place strict tariffs meant to restrict U.S. competition in the Canadian dairy industry. He said although the USMCA overall differs little from the original three-country agreement, American dairy exporters are likely to realize gains from trade in the large and accessible Canadian market.

But Soderbery emphasized that championing the expansion of free trade is antithetical to Trump’s previous protectionist rhetoric. By negotiating fewer tariffs on Canadian dairy imports, Soderbery said, the Trump administration is actually leaning into globalization, a trend that Trump has often derided as harmful to American workers.

“You can claim NAFTA is the worst agreement in history — and plenty of people would agree, and we have evidence that there are some negative effects to it,” Soderbery said. “But then agreeing to an update that doesn’t really shake things up in any way, it’s just not a big enough move to back up the rhetoric. It’s essentially the same agreement.”

While the opening of trade is a win for the dairy industry, the USMCA seeks to incentivize more domestic manufacturing by discouraging outsourcing, or paying foreigners for goods or services.

Soderbery said the deal hopes to increase the amount of automobile parts manufactured or assembled in the U.S. and reduce the trade balance, the difference between exports and imports. This trade balance is a statistic often used by Trump in order to appeal to blue-collar workers.

Greater Lafayette Commerce President & CEO Scott Walker saw the updated agreement as potentially problematic for automobile producers. Provisions in NAFTA allowed companies to create global supply chains, Walker said, but the USMCA’s aversion to outsourcing will change where companies buy parts or labor in future.

Walker said mandating a shift towards more domestic supply chains could lead to later issues since companies that have specialized in mass-producing a few specific car parts under NAFTA will now have to less efficiently produce a greater variety of car parts under USMCA. Costs of adherence to government safety regulations and finding new suppliers could complicate the planned increase to domestic production.

“Changes like that — on the face of it, it sounds great to localize more components – become a challenge for a manufacturer that operates in a global marketplace,” Walker said.

The United Automobile Workers Union, a group that has been critical of NAFTA for its failure to enforce job-security protections, is wary of the “new NAFTA,” as it branded the USCMA in a press release.

The union said the new trade agreement will not bring back the manufacturing jobs that have been outsourced to Mexico.

Soderbery noted that Trump is not the first president to seek solutions to issues created by globalization. Previous administrations have similarly tailored trade policies to assist food and auto manufacturers, though efforts might be better spent organizing a new trade adjustment assistance program to help displaced workers to acclimate, Soderbery added.

“If you look at it on a macro level, trade is good,” Soderbery said. “Expansion and specialization is productivity enhancing. But if you look person-by-person, it’s not good for everybody. If you are displaced, trade doesn’t help you at all.”

Leman experienced the difficulty faced by many dairy producers firsthand when he sold his farm in 2011. He cited the Great Recession as a period characterized by a major decrease in export demand that led to an oversupply for many dairy farmers and extensive financial losses.

“We were so far underwater,” Leman said.

He mentioned trips he took with Indiana’s lieutenant governor, Suzanne Crouch, to Canada and Mexico in 2018 and 2019, respectively, in hopes of improving business relations between Indiana producers and foreign companies.

During the trips, he discovered new opportunities for expansion, like the market for cheese, and learned that Canadian competition was not entirely to blame for U.S. difficulties. Leman said the global recession, coupled with the rise of non-dairy alternatives to milk, cheese and butter, has left many Canadian and American farmers in dire straits.

But on a note of optimism, he said the dairy market has rebounded over the past five years, and he expects local farms to benefit from the ability to sell more processed products for export to Canada.

Though the USMCA is imperfect and its effects are at best dubious, Walker said the new deal comes as a relief considering recent trade tensions.

“It’s better to have some deal than no deal,” he said.

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