In an unprecedented move recently, and in a single tweet, President Trump opted to impose five per cent tariffs on all Mexican imports until the illegal immigration issue gets resolved.
As the world has now realized, when the White House is willing to intertwine both foreign and trade policies, markets around the world tumbled. In fairness to the U.S., China has done the same thing many times before. It’s doing it right now with Canada on canola, pork and other commodities. What’s concerning is how deliberate and explicit the White House is about its intent to punish Mexico. It is a tariff on everything, not just on a few products.
To calm things down, Canada’s Minister of Foreign Affairs Chrystia Freeland stated clearly that the spat between our new North American partners is a bilateral affair. It may be so on the surface, but this will affect Canada eventually, including our agri-food sector.
Mexico is Canada’s fourth-largest market for agri-food and seafood products, with exports of just under $2 billion in 2018. The main commodities exported are wheat, canola, beef, pork, frozen fries and canola seed. We also import many agri-food products from Mexico, mostly in winter, including coffee, tomatoes, avocados, many tropical fruits, and produce. With more tariffs and trade disturbances between the U.S. and Mexico, that number could go up. Mexican exporters will look for another market for their products, and Canada is not too far away. Many Canadian importers will also appreciate the bargains that can be procured from Mexico.
In turn, these tariffs could jolt both Canada and Mexico into a new, rejuvenated relationship. Mexico has the 11th largest population in the world, almost 130 million inhabitants, yet we have barely tapped into that market over the years.
Interestingly, Canada’s main opponent in the Mexican food market is the U.S. big-box stores. Walmart and Costco dominate the food retailing landscape in Mexico, with market shares exceeding 50 per cent. These new tariffs are certainly not welcome news for these retail giants, and they may be tempted to source products outside the U.S. Since food safety standards are mostly harmonized between the U.S. and Canada, procuring products from other North American suppliers may not be that risky for these companies.
However, these tariffs could be a huge blow to the Mexican agri-food sector. More than 60 per cent of all Mexican agri-food exports go to the U.S., and many of these ingredients are incorporated into food products we import ourselves from the U.S. A tariff of five per cent won’t make much of a difference. But at 25 per cent, global supply chains will be affected, which could disrupt how countries buy and sell with each other. Canadian consumers won’t be affected much, if this remains a bilateral spat, but this is far from guaranteed.
Beyond the agri-food factor, this dispute between Mexico and the U.S. has reached a level we have never seen in the western world. One country being punished economically for a very contentious, socio-political human issue is new ground in the West. Using trade regulations to force a partnering nation to make internal policy changes is worrying. Canada could be one of America’s next targets, through sanctions on immigration, cannabis, or some other product or issue. Who knows?
Agri-food has always been the tip of the spear when it comes to trade disputes. It will affect consumers and will eventually hit Canadians if this escalates.
These new tariffs could be an opportunity for Canadian exporters, but nobody really knows how long they will last. This recent signal from the White House is extremely concerning. It’s not just about economics anymore, but more about global dominance of political economies. Anything is now possible.
It’s not exactly surprising, given what we have seen since 2017, but Canada is now more vulnerable than ever. The agri-food sector needs to capitalize on our newly ratified trade agreements with Europe and Asia, so that we can diversify our portfolio and hedge against future White House temper tantrums.
Diplomatically, even if the United States-Mexico-Canada trade deal is not in jeopardy, if we’re not now very close to Mexico, we need to be. This dispute can benefit Canada, but only time will tell for how long. Mexico should be Canada’s new best friend, as far as agri-food imports are concerned, so we should all start consuming more Mexican products. Break out the guacamole!