Curbing agricultural subsidies to open international markets

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The political fight over agricultural protectionism in Western capitalist democracies began in earnest with the British Parliament’s passage of the Corn Laws in 1815. These laws erected tariffs on imported grain to inflate domestic prices artificially and shield farmers from competition from abroad. The issue of free trade being an essential line of demarcation in British politics, the Corn Laws also sparked a backlash so intense that The Economist magazine was founded in 1843 to promote their repeal, which eventually was achieved in 1846. Although much progress has been made in ferreting out agricultural protectionism in the years since, we are in many ways still litigating the same policy debates today, although the focus largely has shifted from tariffs to domestic subsidies.

Over the last two years, free trade has been unfairly maligned by politicians on both the left and the right. While this may be a winning political tactic, it fails on the merits, as the policy case for trade liberalization, particularly agricultural trade, remains as strong as ever.

There is little doubt that American farmers, ranchers and consumers have benefited from trade liberalization efforts since the end of World War II. The creation of the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO); the rise of trade agreements; and the impact of cutting edge technologies all have contributed to the United States becoming the largest agricultural exporter in the world. In 2015 alone, U.S. agricultural exports totaled $133 billion and supported more than 1 million jobs domestically.

Nor does the United States only benefit from exports, as there are a host of demonstrable benefits from agricultural imports. Imported agriculture allows Americans to enjoy more products year-round, rather than being limited to when they are “in season” domestically. Likewise, Americans enjoy lower prices from imported agriculture, some of which (like grain) is used by farmers and ranchers in the production of their own crops and agricultural products.

Accordingly, domestic agriculture was set to be one of the largest net winners of improved market access offered by the Trans-Pacific Partnership (TPP), a 12-nation multilateral trade pact. Among other provisions benefiting the United States’ agricultural industry was the elimination of virtually all agricultural tariffs among member nations, as well as the elimination of all agricultural export subsidies. In short, the TPP would have been a much-needed boon to domestic agriculture. It therefore is regrettable that this promising agreement was jettisoned by the Trump administration, particularly the provisions that concern domestic agricultural interests.

Further, the administration’s recent notification to Congress of its intent to renegotiate the North American Free Trade Agreement (NAFTA) has made farmers and ranchers who export their products to Mexico and Canada increasingly anxious about what the future has in store. For these reasons, the time is right to begin the conversation about liberalizing agricultural trade.

As Congress begins drafting and debating the next farm bill, the current version of which is set to expire in 2018, it is important that policymakers understand the benefits of liberalization and why distortionary domestic subsidies ultimately undermine free trade; thereby hurting American farmers, ranchers and consumers.


Image by FabrikaSimf

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