Mexico is considering the introduction of a ban on US corn imports as a way to increase its leverage in trade negotiations with its neighbour, but such a measure would be both difficult to implement and harmful to the economy.
The US-Mexico trade spat keeps escalating: after President Donald Trump suggested imposing a 20% import tariff on all the goods coming in through the US’ southern border, the latest blow has come from Mexico. Last week, senator Armando Rios Piter announced that he is planning to introduce legislation banning corn imports from the US, and replacing them with corn produced in Brazil and Argentina.
While it is understandable that Mexico is considering countermeasures against Trump’s repeated attacks on Mexican trade, such a ban is easier said than done: in 2016, Mexico imported around 13 million tonnes of yellow corn, almost 100% from the US.
Brazil and Argentina have the capacity to make up for US corn imports, but switching providers would be costly. “We don’t think it would be convenient because of logistics, storage and transportation costs. Switching from the US to South America would make [corn] imports 10 to 15% more costly. Given this increase, the Mexican government would have to subsidise these imports, and it’s not a low subsidy – around US$20 to US$30 per tonne of corn imports,” explains Arnulfo Rodriguez, senior economist at BBVA Bancomer in Mexico City.
Agricultural exports are one area where there’s a certain scope to mitigate the deficit the US has on the non-agricultural components of trade, so initiating a food war is not the best idea at this time. Jaya Jha, AAEA
If the goal is to hurt the US economy – even if it costs Mexico US$390mn a year – the ban would be successful: corn represents around 10% of US agricultural exports in terms of value, and Mexico is its largest buyer, at around 24%, followed by Japan at 20.1%.
“Assuming Mexico imposes corn tariffs or even a total ban, to corn farmers in the US it’s a significant blow, because it means they lose [almost] 25% of their market share,” Jaya Jha, an economist and member of the Milwaukee-based Agricultural and Applied Economics Association (AAEA), tells GTR.
Agricultural trade is the area where Mexico has the most leverage against the US. Jha explains that Mexico is in the top five buyers of almost 26 agricultural commodities sold by the US. Moreover, it is one of the only sectors where the US exhibits a trade surplus, something the government would be unwilling to change.
“Agricultural exports are one area where there’s a certain scope to mitigate the deficit the US has on the non-agricultural components of trade, so initiating a food war is not the best idea at this time,” Jha adds.
But this is still a dangerous game for Mexico to play, where agriculture is a much bigger part of the export mix. “This ban is highly debatable,” says Rodriguez. “We don’t want the US to introduce countermeasures. For example, 50% of Mexico’s tomato production goes into the US, so Mexico is very dependent on the US market. If there was a US ban on tomato imports from Mexico, Mexican producers would be hurt and it would not be easy to send the tomato surplus to Europe or Asia because in the case of tomatoes, shipping times are crucial.”
“Both countries have a lot to lose. It is in both their interests to avoid a trade war, whether in agriculture or manufacturing,” he concludes.