The trade dispute between the U.S. and Mexico over U.S. tariffs on imports of steel and aluminum from Mexico has both short- and long-term implications, an analyst says.
In the short term, Mexico’s retaliatory import tariff of up to 25 percent on U.S. cheese is likely to challenge U.S. dairy exporters and could put downward pressure on prices.
But in the long term, the trade dispute could cast the U.S. as an unreliable supplier, Tom Bailey, a Rabobank analyst, said in a podcast.
“In the short term, we’re going to see some pricing challenges potentially and some volatility in the markets. Longer term though, the implications are more difficult,” he said.
Individual U.S. exporters, of course, are working with customers to get product into Mexico and show that they’re good partners, he said.
“But the reality is that the U.S. may be viewed as an unreliable partner because we have … a political environment that can create these types of tensions and can create challenges going forward,” he said.
As the U.S. becomes a much larger global player, the dairy industry wants to be seen as reliable; it’s a valuable quality, he said.
“I think it’s something we need to reflect on, to say ‘How do we work to ensure we are seen as reliable in the face of this latest development,’” he said.
It’s a highly uncertain time, and the tariffs and counter tariffs are all part of the negotiation tactics with renegotiating the North American Free Trade Agreement. Exporters shouldn’t make long-term decisions based on the current trade dispute, he said.
“The U.S. is the natural, local supplier of imported cheese to Mexico, and to try to force it another way doesn’t quite make sense,” he said.
But exporters should not expect the same favorable situation as when Mexico levied nearly identical tariffs on U.S. cheese in 2010 during tensions over Mexican truck access to U.S. roads, he said.
“A lot has changed in the last eight years,” he said.
Back then, Mexico really relied on the U.S. to meet its demand for cheese, and it didn’t have other trade agreements in place to supplant U.S. cheese. It has now signed an agreement with the EU, giving it leverage, he said.
While it hasn’t yet been implemented, it’s possible the current situation with the U.S. might expedite the process to include cheese sooner than planned, he said.
In addition, the Mexican peso was at a more favorable rate in relationship with the U.S. dollar in 2010, and affordability was not quite an issue for importers. But the peso has depreciated, he said.
“So these tariffs are going to have more of an impact,” he said.
The Mexican cheese industry is probably going to see renewed pressure to increase supply, limiting competition and increasing their share in the Mexican market, he said.
“One of the interesting dynamics that might occur is that milk powders were not included in the tariff list, and Mexican cheese manufacturers can use milk powders in the production of cheese,” he said.
So there might be a slight uptick in Mexico’s powder imports from the U.S., which might boost U.S. prices on milk powders.
U.S. cheese manufacturers could see higher inventories and lower-than-expected prices, and manufacturers with a flexible product mix might switch from cheese to other products, he said.
Source: capitalpress.com
