Trade tensions between the US and Mexico have spiked since late last week, when US President Trump threatened to place 5% tariffs on the import of Mexican goods. While the impact on horticultural crops, like tomatoes, might be limited for now by seasonal growing cycles, the potential ramifications for the countries’ integrated meat industries could be particularly severe.
The US and Mexican cattle and beef industries have become increasingly intertwined since the advent of NAFTA in the 1990s. USDA data shows a system in which Mexico sends live animals and bone-in beef to the US, while the US ships boneless beef and offal cuts to Mexico. Cross-border beef shipments between the US and Mexico totaled $1.9 billion in 2018.
The chart above tracks growth of US imports and exports of bone-in and boneless beef in trade flows with Mexico. Green lines represent US exports and blue lines are US imports.
Mexico has sharply ramped up its beef exports to the US, with bone-in beef exports in 2018 more than 34 times the level seen in 2004. Meanwhile, US shipments to its southern neighbor also have grown—since NAFTA was implemented in 1994, US exports of boneless beef to Mexico have tripled. (At the same time, US shipments of live bovines to Mexico, never a large number, have dropped to near zero.)
The potential imposition of tariffs undermines one of the original aims of NAFTA, to forge a free trade system for doing business. Integrated supply chains in which value is added progressively in a different country are especially vulnerable to trade tensions, and could result in goods being taxed at multiple levels along the production chain.
Mexican officials warned of the impact tariffs would have on such integrated supply chains, which, besides cattle and beef, also includes auto parts. Jesús Seade, Mexico’s deputy foreign minister and chief trade negotiator, said some auto parts cross the border as many as eight times before a vehicle is finally assembled. “So the effect on prices for consumers will be much greater than 5%, or 10, or 20 or 25%,” Seade said.
Trump threatened to impose the tariffs in order to force Mexico to reduce the flow of migrants from the country into the United States. He said the tariff rate, initially 5%, would increase an additional 5 percentage points each month through October unless the Mexican government took satisfactory action.
The chart below shows US/Mexican trade in live cattle and offal. Green lines represent US exports to Mexico and blue lines are US imports.