The Potential Impacts of NAFTA Disintegration on U.S. Cotton

The Trump administration’s decision to renegotiate the North American Free Trade Agreement (NAFTA) began in Washington, D.C. on August 16 with an optimistic completion date by the end of the year. The movement in the NAFTA renegotiation is still unclear. Considering that Mexico is one of the largest market for U.S. cotton exports, any changes related to Mexican imports of U.S. cotton should have significant implications for the U.S.-Mexico cotton markets. This analysis summarizes the estimation results of an econometric and simulation model that allows for the assessment of potential implications of plausible scenarios on the U.S.-Mexico cotton markets over the next 10 years. Our simulation results indicated that declining Mexican cotton imports would put downward pressure on the U.S. cotton farm prices. But, the price impacts dissipated over time and the average rates were minimal over the entire projection period. Moreover, decreased cotton demand from Mexico would do little to curb the total U.S. cotton exports over the projection period, largely because U.S. exports will simply be diverted to other emerging textile producing countries, such as Bangladesh and Vietnam.