USMCA could cost Georgia nearly $1B a year
May 8, 2019
Although the U.S.-Mexico-Canada Agreement is expected to result in negligible gains for the economy as a whole, certain industries may experience larger effects. A recent study suggests USMCA may lead to dire consequences for the fruit and vegetable industries.
The University of Georgia’s Agricultural and Applied Economics department recently published a study titled “Policy Brief: The Impact of the USMCA on Georgia’s Small Fruit and Vegetable Industries.” If USMCA is ratified as is, U.S. fruit and vegetable growers could experience “substantial harm through unfair competition from Mexican imports.”
Historically, Georgia blueberries are ripe and ready for market before blueberries in northern states. Fall vegetables such as tomatoes, peppers, squash, cucumbers and eggplants are also prevalent in the Peach State.
Because of Mexico government subsidies, the U.S.’s southern neighbor has been able to greatly expand the weeks during which their imports compete directly with Georgia, according to the report. As a result, Georgia’s naturally occurring advantage has been undercut by these imports at prices well below Georgia’s production costs.
As it currently stands, USMCA offers no protection for American producers from seasonal damage or government subsidies, allowing very little relief for U.S. growers to compete fairly with Mexican imports. According to the paper, Mexico’s subsidies has expanded its protected production are from 25,000 acres to more than 100,000 acres. Furthermore, labor costs that are approximately one-tenth of U.S. labor allow Mexican imports to be less than one-half the price.
“Unless the current deal is amended, these Mexican imports can cause extensive economic damage to Georgia (and American) fruit and vegetable growers with no remedy available to American growers,” researchers state in the study.
According to the analysis, mild damage to Georgia’s fruit and vegetable industry could result in annual economic losses of nearly $340 million, with more than 3,000 jobs lost. At the higher end of the spectrum, catastrophic damage could cost the economy nearly $900 million a year with nearly 9,000 jobs lost.
If trends in Mexico continue, mild damage is forecast to occur within the next one to two years, the medium damage scenario would be expected within three to four years, and the catastrophic damage scenarios could occur within five to eight years.
“The results above make clear that Georgia’s economy would suffer a significant blow unless the new trade agreement is amended,” the study states. “The potential job losses represent an increase in state unemployment of 0.2%, which is a 5% increase from the current level of 3.9%. The damage will be felt much more severely in Georgia’s rural communities and by Georgia’s agricultural sector.”
Some counties in the state will get hit harder than others. Echols, Clinch and Bacon counties could realize an annual income drop of 46%, 40% and 23%, respectively. The report points out that for a county to lose more than 40% of income, Great Depression-scale damage can be done. Even a 2% to 5% income drop is equivalent to an economic recession.
Researchers reached the following conclusion:
“The conclusion of this modeling exercise is that if the new USMCA is approved as currently negotiated, without any recourse for American farmers to seasonal damage from Mexican government-subsidized production, the economic losses to the Georgia blueberry and vegetable industries will be considerable. The state is on track to lose nearly one billion dollars in annual economic output and over 8,000 jobs unless something occurs to slow down the increase in low-priced Mexican imports of blueberries and vegetables. On a county-by-county basis, the losses in a few cases will likely reach economic damage rarely seen since the Great Depression.”
In April, the U.S. International Trade Commission released its analysis of USMCA. The commission estimated that USMCA will yield a relatively insignificant positive effect on U.S. GDP and employment. More specifically, if passed as is, USMCA would raise U.S. GDP by only 0.35% and increase employment only 0.12%.
Although all three countries signed USMCA, all three must ratify the agreement before it can go into effect. So far, neither country has done so. With a Canadian federal election in October and a Democrat-led House under a Republican presidency, ratification in either country may be further away than expected. If USMCA is not ratified by all three participants, then the North American Free Trade Agreement will remain intact.