Central Texas Iron Works (copy)

Juan Ramirez Gonzales smooths out welds with a grinder at the Central Texas Iron Works facility in Waco.

Oglesby cotton farmer Neil Walter has shied away from buying big-ticket items the past few months. Uncertainty surrounding tariffs and trade agreements has put him in a skitterish mood. That mood changed Tuesday.

President Donald Trump, House Speaker Nancy Pelosi and representatives of this country’s geographic neighbors agreed the long pending United States-Mexico-Canada Agreement will become law, and the House appears poised to approve the agreement next week. But Senate Majority Leader Mitch McConnell said the proposal likely would not come up in the Senate until next year, according to the Reuters news service.

“My comment would be, we always need good trading partners, fair trading partners, and I trust the USMCA has been hammered out to the benefit of all three parties,” said Walter, who appeared to be reciting his mental notes.

Then he got down to the nitty gritty. Cotton prices were good in the spring but have faltered in recent months, besieged by international pressures that include tariffs on China, a major cotton importer, and uncertainty over USMCA.

He notices that clothes he wears are made in Mexico, from cotton, perhaps cotton grown in Texas. The two countries scratch each other’s itch. That’s what free trade is all about, said Walter, who sees USMCA as a step in that direction, and possibly a step toward improved market prices. He is paying the day-to-day bills, providing food, clothing and shelter for himself and his wife. His four children are grown and “have left the nest.” Larger items, such as a new car or truck or piece of farm equipment, will have to wait.

“I don’t move on those very much,” Walter said. “I’m a little bit apprehensive about getting paid the price I need to make such purchases.”

But he and the Waco-based Texas Farm Bureau see better times ahead.

“Today’s announcement is great news for Texas farmers and ranchers,” Texas Farm Bureau President Russell Boening said in a press release. He went on to urge members of Congress to swiftly approve the measure.

Farm economy

“This critical agreement will bolster a U.S. farm economy that is in desperate need of new market opportunities and momentum,” Boening said. “It is expected to increase U.S. agricultural exports by $2 billion and result in a $65 billion increase in gross domestic product.”

He thanked congressional leaders and U.S. Trade Representative Robert Lighthizer for their efforts.

International economist Ray Perryman, whose headquarters are in Waco, touted the importance of USMCA during a recent “State of the Nation” conference hosted by the Greater Waco Chamber of Commerce.

“Texas had a lot to lose without a replacement for the 25-year-old North American Free Trade Agreement,” Perryman said in an email referencing good news about passage of the treaty. “The Texas and Mexican economies have integrated significantly since NAFTA was passed. Cross-border supply chains are common along the Texas-Mexico border, with certain aspects of production occurring in each country depending on relative comparative advantages.”

Auto manufacturing

In auto manufacturing, “certain aspects of assembly happen in Mexico, where the workforce is well-suited to particular tasks,” he said. “Another major sector with similar characteristics is electronics manufacturing. The same products may cross back and forth multiple times. Without a trade agreement, such arrangements could become more difficult or more costly, and as a major source of exports to Mexico, Texas would be a loser in that scenario.”

The proposed agreement “requires 75% of automobile components be manufactured in the United States, Canada and Mexico in order to avoid tariffs, and that 40 to 45% of automobile parts be made by workers who earn at least $16 an hour by 2023,” according to foxbusiness.com. The American Automotive Policy Council estimates the agreement would “incentivize a $23 billion increase in U.S. annual parts sales alone,” according to a press release on Tuesday’s news.

Perryman said Texas, and the United States, would have suffered mightily had the countries involved and their representatives reached an impasse.

“The World Trade Organization does a good job with general monitoring and enforcing of trade around the world, but it’s not the same as an agreement specifically designed to meet the needs of the U.S., Mexico and Canada,” Perryman said. “Our detailed analysis a couple of years ago revealed that NAFTA created about a 4% cost advantage for the U.S. relative to the default WTO tariffs that would govern in the absence of an agreement. In a highly competitive marketplace, that is the difference between success and failure.”

Perryman said number crunching remains, “but I feel very comfortable in saying that the new agreement will bring tens of thousands of jobs to Texas.”

Vast improvement

Jessica Attas, vice president for public policy at the Greater Waco Chamber of Commerce, said USMCA is a vast improvement over NAFTA. It would create more than 176,000 additional jobs, raise the annual U.S. gross domestic product by $68.2 billion and increase U.S. exports by $33.3 billion, Attas said.

“In Waco, so many small businesses rely on trade and have seen growth because of the ability to export to Mexico and Canada,” she said. “In fact, while it’s sometimes difficult to get localized data, we do know that trade accounted for about 10% of Waco’s real GDP growth in 2018.”

Kris Collins, senior vice president for economic development at the Greater Waco Chamber of Commerce, said she just returned from a conference in Houston where USMCA was a sig- nificant topic of discussion.

Finalizing the measure will provide certainty to U.S., Canadian and Mexican companies engaged in international trade, something heretofore lacking.

At Central Texas Iron Works, executive Curtis Cleveland said the company enjoys a tariff-free relationship with Alberta, Canada, a hotbed of oil production and refining to which it has shipped steel for years. With USMCA settled, and with assurances Central Texas Iron Works-supplied steel will remain duty free, the company can negotiate to take part in a new venture, building petrochemical plants, Cleveland said.

Jay Lathern, owner of a multi-faceted materials company that includes Metals2Go and Davis Iron Works, said he receives truckloads of product daily from Mexico, and with it supplies clients within a 200-mile radius of Waco. Customers include makers of trailers and cargo-hauling vehicles, as well as contractors involved in facilities construction. He said he employs about 140 people in a competitive business with razor-thin profit margins.

Lathern applauded the pending trade agreement but hopes to learn more information contained in the fine print. He said even with applicable tariffs, much of what he accepts from Mexico is less costly than that from domestic sources, which he would prefer to patronize if at all possible.

“I give preference to local sources, but when you’re talking about a price difference of 15 to 20%, you do what you have to do to compete,” he said.

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