Bare Knuckles Ag ™

Trade Deficit With Mexico Much Worse Than Reported

It’s no secret determination by President Trump to renegotiate NAFTA has U.S. ag interests worried and warning him about adverse impact on U.S. ag trade. What many don’t realize is that the real deficit is much worse, but actually offers the President a way to achieve his goals without unraveling NAFTA gains for U.S. ag exports.

The “real” trade deficit with Mexico is almost 4 times larger than reported – but offers the President an option to NAFTA hard-ball.

President Trump worries U.S. ag interests in his determination to “re-negotiate NAFTA”. He’s particularly incensed about abuses of NAFTA provisions that swell that deficit in manufactured trade. Farm groups generally have no quarrel there. But with the exception of U.S. fruit & vegetable producers, farm groups are remarkably united in pleas that the President not endanger NAFTA provisions credited for dramatic reduction in the negative balance for ag trade. Mexico has become the top export market for U.S. corn and a significant and growing market for U.S. soybeans, meat and dairy products.

“Officially”, the Commerce Dept. reports a $55.6 billion trade deficit for 2016:

  • -$58.2 billion in manufactured goods trade

  • -$5.0 billion in agricultural products trade

  • + $7.6 billion in services trade

But if you count “unofficial” trade, the deficit is almost 4 times larger! Think of “trade balance” in its simplest terms: Net flow of funds between the citizens of our two countries. Commerce Dept. stats don’t include the flow of U.S. funds to Mexico from these 3 elements:

  • Illegal drug “imports” from Mexico valued at $64 billion in 2016.

  • Illegal labor “imports” from Mexico estimated at $27.6 billion in “remittances” (official term for earnings sent home to families by illegal immigrants) in 2016.

  • Social service obligations to illegal immigrants in healthcare, education and law enforcement, estimated at a net $112.2 billion (costs in excess of the estimated $22.5 billion illegal immigrants actually pay in taxes).

Add these three elements of U.S. “flow of funds” to Mexico and total outflow soars by 78%, to $466 billion, from the $262 billion in exports to Mexico reported by the Commerce Department. Subtract those two numbers and the “real” deficit in net flow of funds soars 367% – to $204 billion from the $55.6 billion deficit Commerce reports.

How this perspective could save NAFTA gains for U.S. agriculture: Effective control of illegal immigration offers potential to sharply reduce all three elements of the “illegal” imports and social service costs as defined above. If the President can highlight those, he will be able to claim victory by just “tweaking” the most flagrant abuses of NAFTA in manufactured goods trade instead of hard-ball, wholesale renegotiation that risks Mexican retaliation so worrisome to U.S. ag interests warning him against it.

Comments? Questions? Contact me. I’d love to hear from you!

Dan Manternach

President, Perfect Fit Presentations, LLC

Copyright © 2017, ALL RIGHTS RESERVED

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