In an unprecedented move last week, and in a single tweet, U.S. President Donald Trump imposed five per cent tariffs on all Mexican imports until the illegal immigration issue gets resolved.
As the world now realizes, when the White House is willing to intertwine foreign and trade policies, markets around the world tumble.
In fairness to the United States, China has done the same thing many times. 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 imposed a tariff on everything, not just on a few products.
To calm things down, Canadian Foreign Affairs Minister 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 seeds.
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, Mexican exporters will look for another market for their products and Canada isn’t too far away. Many Canadian importers will also appreciate the bargains that can be procured from Mexico.
These tariffs could jolt Canada and Mexico into a new, rejuvenated relationship. Mexico has the 11th largest population in the world, almost 130 million inhabitants, yet we’ve barely tapped into that market over the years.
But Canada’s main opponent in the Mexican food market remains in the U.S. Big box stores Walmart and Costco dominate the food retailing landscape in Mexico, with market shares exceeding 50 per cent. The new tariffs are unwelcome 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 Canadian suppliers isn’t 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 Canada imports from the U.S.
A five per cent tariff 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 that’s far from guaranteed.
This dispute between Mexico and the U.S. has reached a level we’ve never seen in the Western world. One country being punished economically for a very contentious, socio-political issue is new ground in the West. Using trade regulations to force a partnering nation to make policy changes is worrying.
Canada could be America’s next target, 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.
The recent signal from the White House is extremely concerning. It’s not just about economics anymore – it’s about global dominance of political economies. Anything is possible.
That’s not exactly surprising, given what we’ve seen since 2017, but Canada is more vulnerable than ever. The agri-food sector needs to capitalize on our newly-ratified trade agreements with Europe and Asia so we can diversify our portfolio and hedge against future American temper tantrums.
Diplomatically, even if the United States-Mexico-Canada trade deal isn’t in jeopardy, even 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. For now, 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!
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University, and a senior fellow with the Atlantic Institute for Market Studies.