How Mexico’s tariffs on U.S. pork could hit Canadian producers
Mexico’s retaliatory tariffs on U.S. pork could inadvertently disrupt the Canadian market, dragging down live hog prices for farmers and squeezing sales south of the border.
In an example of how tariffs targeted at one specific NAFTA country can rattle the others, analysts and industry players say the pork levies hitting the U.S. will distort long-established trade patterns in a manner that hurts all three economies.
“The problem is we’re a highly integrated market and meat moves among the countries based on demand,” said Gary Stordy, director of government and corporate affairs at the Canadian Pork Council. “Those traditional flows are rarely disrupted but when they are, the impact is felt by our producers very quickly.”
U.S. President Donald Trump’s tariffs on steel and aluminum imports have prompted a wave of retaliatory measures from other countries including Mexico, the largest market for U.S. pork exports by volume. As part of its tit-for-tat response, Mexico announced an initial 10-per-cent tariff on imports of unprocessed U.S. pork, a levy that will rise to 20 per cent on July 5.
Meanwhile, China — locked in its own escalating trade battle with the U.S. — has vowed to raise existing import duties of 12 per cent on pork products by another 25 per cent. The products affected by the tariffs include “variety meats,” the elbows, ears and feet that have little value in the United States but are in high demand in China, the third largest export market for U.S. pork.
Not surprisingly, the trade uncertainty is already hammering producers south of the border, with hog futures tumbling by US$18 per animal between March and May, a $2.2-billion annualized hit on the industry, according to the U.S.-based National Pork Producers Council (NPPC).
“The toll on rural America from escalating trade disputes with critically important trade partners is mounting,” said Jim Heimerl president of the NPPC. “Mexico is U.S. pork’s largest export market, representing nearly 25 per cent of all U.S. pork shipments last year. A 20-per-cent tariff eliminates our ability to compete effectively.”
In theory, Canadian producers could benefit from all this upheaval by stepping in to fill the void in the Mexican and Chinese markets. Indeed, U.S. suppliers shipped US$1.5 billion worth of pork products to Mexico last year while Canada’s pork industry exported just $194 million to Mexico. With U.S. producers saddled by tariffs “Canada could take over as the main source of supply,” said Kevin Grier, an independent market analyst for the food industry.
But just as Canada could send more ham to Mexico, the U.S. would likely send more ham to Canada, Grier said. And with the U.S. facing a potential surfeit in supply, Canada’s exports south of the border would be curtailed. Last year, Canadian producers sent $1.4 billion worth of pork to the U.S., their largest export market. The U.S. shipped US$792 million worth of pork to Canada, its fourth largest market.
“U.S. hams that might have gone to Mexico could come here instead of going to the place of highest demand,” Grier said.
Those disruptions to trade patterns can’t help but make markets less efficient and drive up prices for customers, said Dermot Hayes, an economist and chair in agribusiness at the University of Iowa.
“It’s a waste of transportation and it’s a waste of money,” he said. “For more Canadian ham to get to Mexico, it’ll have to be shipped somehow and across much further distances.”
And the tight integration of NAFTA markets means that as U.S. producers suffer, so will their Canadian counterparts, Hayes added. Canadian live hog prices are tied by a formula to those in the United States, “so if U.S. hog prices fall, Canadian prices will follow,” he said. For example, as China slaps a tariff on U.S. variety meats in retaliation for Trump’s tariffs, the resulting decline in live hog prices will hit Canadian producers, too.
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