The US Just Narrowly Avoided A Trade War With Mexico

The US and Mexico just narrowly averted a trade war yesterday.

The two countries came to an agreement to avoid import duties just hours after the US Commerce Department found that Mexican sugar exporters were dumping the product on the US market at a margin of more than 40%.

In all, the industry has said the dumping will cost American producers almost $US1 billion in net income for the crop year.

According to a statement by the International Trade Administration, the agreement will prevent Mexico from undercutting US sugar prices, as well as “prevent imports from being concentrated during certain times of the year, limit the amount of refined sugar that may enter the US market, and establish minimum price mechanisms to guard against undercutting or suppression of US prices.” Reuters reports that Mexican producers agreed to a price floor of $US0.2357/lb for refined sugar and $US0.2075/lb for raw.

The two countries have been teetering on the edge for months over the dumping allegations, first made last spring. The industry demanded that the Obama administration impose new import duties, despite the North American Free Trade Agreement, which the US Sugar Alliance says permits tariff-free and quota-free trade, but doesn’t permit dumping. The two countries have more generally been fighting over sugar for decades.

Last week, the Mexican economy minister Ildefonso Guajardo told the Financial Times that if the US triggers duties on Mexican sugar, Mexico would retaliate with duties on US corn syrup.

The dumping question just exacerbates the more general problem the U.S. sugar industry has with its neighbour to the south: Mexico doubled sugar exports to the US between 2011 and 2013, and as of the 2012-2013 growing year, Mexican sugar accounted for 18% of the US market.

The current price of sugar is low — lower even than in May, when Reuters reported “prices currently languish near the cost of production for many of the world’s millers amid four back-to-back years of surplus.”

Sugar futuresFinvizUS sugar futures as of October 27

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at