Let’s step back in time to the mid-‘90s. We’re going back about 30 years. This was when the U.S. abandoned “managed trade” and embarked upon the free trade experiment, also known as “rules-based trade.”
Two momentous events occurred that solidified this paradigm shift. First, the U.S. entered NAFTA, the free trade agreement between the United States, Canada and Mexico. Second, the World Trade Organization was established pursuant to the 1994 Uruguay Round of the 1947 General Agreement on Tariffs and Trade. Thereafter, the WTO replaced GATT as the governing body for globalization.
The goal was to agree on a set of global trade rules that would essentially replace tariffs as the preferred means of managing trade–hence the reference to abandoning managed trade in favor of rules-based trade.
Though America took a deep dive into this new rules-based trade, there were skeptics–and fortunately so.
The skeptics hedged their bet that the U.S. cattle industry could survive the new, experimental paradigm, and they successfully negotiated with the WTO for a tariff-rate quota system for beef to prevent a wholesale tsunami of cheaper beef imports from around the world that could destroy America’s beef and cattle supply chains.
What the skeptics did was look at the approximate volume of beef imports from various countries and then used those volumes to establish soft limits on beef imports from the major beef-exporting countries at the time.
What I mean by soft limits is that countries can exceed their tariff-rate quota (TRQ) by paying an over-quota tariff rate of 26.4%, so it is not a hard cap on imports; it is only a threshold above which imports are discouraged by the higher tariff rate.
In 1995, when the WTO-approved TRQs were established, the U.S. imported 2.1 billion pounds of beef and exported 1.8 billion pounds, leaving the U.S. with a beef trade deficit of about 2.8 million pounds.
Now, fast forward to 2024. The U.S. imported 4.6 billion pounds of beef and exported 3 billion pounds, leaving the U.S. with a beef trade deficit of 1.6 billion pounds.
Thus, the U.S. beef trade deficit is now nearly six times larger than it was when the U.S. began experimenting with rules-based trade three decades ago.
But the trade picture for the domestic cattle industry is actually much worse than what I just described because I did not include the beef we import in the form of live imported cattle. When the beef from imported cattle is included, the beef trade deficit increases significantly.
For example, in 2024 we imported 1.6 million more live cattle than we exported. Using the beef checkoff program’s conversion formula, in which each head of cattle represents 592 pounds of beef, those 1.6 million imported cattle added almost an additional 1 billion pounds to the beef trade deficit.
But back to the tariff-rate quotas that were intended to discourage additional imports above the quota limit. Were they effective?
The total annual quota for all TRQ countries is about 1.5 billion pounds. But, as I mentioned earlier, in 2024 the U.S. imported 4.6 billion pounds. This suggests two things: First, the current TRQ limit is ineffective at limiting imports, and second, the 26.4% over-quota tariff rate is too low to discourage excessive imports.
In fact, one of the reasons the total TRQ limit is ineffective is because two of the top importing countries have no limits at all. Canada and Mexico can send unlimited volumes of beef and cattle into the U.S. This is significant, as together Canada and Mexico shipped 1.6 billion pounds of beef to the U.S., not including the nearly 1 billion pounds of beef derived from the importation of their live cattle.
What concerns us is that when the U.S. persistently buys more beef than it sells, it is depriving the U.S. of the opportunity to become self-reliant in beef production, to strengthen our domestic beef supply chain and to reinvigorate our rural economies.
So, what should we do to correct this destructive beef trade deficit? Here’s what we recommend:
First, we should set a world-wide TRQ that includes all beef imports from all countries at a level that reduces the total volume of beef imports entering the United States by 1.5 billion pounds. This will give our industry the space it needs to begin rebuilding.
Then, we need to enact country of origin labeling for beef so domestic producers can compete against imports and establish tariffs on imports so when domestic producers compete against these lower-cost imports, they can do so on a level playing field.
This, we believe, will encourage the rebuilding of our U.S. beef supply chain.
