Farmers and ranchers were a key political constituency for President Trump in 2016. But after a year of trade-policy skirmishes, the president’s policy choices have fallen particularly hard on the heartland. Slashing tariffs and domestic subsidies would be key to opening new agricultural markets abroad, but policymakers in Congress and the White House regrettably moved in the opposite direction in 2018.
Trump’s ill-advised trade policies have wreaked havoc on agriculture exports. This spring, the president imposed “national security” tariffs on imported steel and aluminum, including products from our closest allies like Canada and the European Union. In retaliation, the EU imposed tariffs on $3.2 billion worth of American products, 30 percent of which were agriculture and food products, including corn. Meanwhile, Canada retaliated with tariffs on $12.8 billion of American products, 19 percent of which were agriculture and food products. Other countries like Turkey have also retaliated against American agriculture exports like tobacco.
Following the steel and aluminum tariffs, the Trump administration imposed duties on products from China, purportedly to combat Beijing’s unfair trade-policy practices, including forced technology transfer and intellectual property abuses. The response from China was entirely predictable: Beijing retaliated against American products, including agriculture products like soybeans. Though Beijing has resumed limited purchases of American soy in the aftermath of the G-20 short-term trade truce, it is estimated that U.S. exports of the product to China are down more than 90 percent for the year. And China imported zero American soybeans in November 2018.
Current estimates show nearly $30 billion worth of American agriculture exports are now subject to retaliatory tariffs. In order to mitigate the damage to farmers and ranchers from the fallout from his trade wars, the president and the Department of Agriculture dusted off a New Deal-era program under the Commodity Credit Corporation called the Market Facilitation Program. The program will provide $12 billion in incremental payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy, and hogs, all of which are subject to foreign retaliation. The president just announced the second round of payments earlier this month.
To compound this mess, the president just signed a new farm bill. Chock-full of environmentally damaging domestic subsidies that flow primarily to wealthy farmers and major corporations, the farm bill’s nearly $900 billion price tag is a bad deal for taxpayers. Farm subsidies are non-tariff barriers to trade that artificially lower U.S. prices but make foreign products uncompetitive domestically.
The failure of developed nations, particularly the United States and members of the European Union, to curb domestic agriculture subsidies is a major impediment to increased market access. In fact, the last major multilateral negotiating round at the World Trade Organization, dubbed the Doha Development Round, broke down largely over the issue of agriculture subsidies. Completion of the Doha Round would have been an enormous boon to American farmers and ranchers, as global barriers to trade would have fallen dramatically.
After much saber-rattling and unnecessary uncertainty, the United States finally came to terms with Canada and Mexico to update the North American Free Trade Agreement. Under the updated agreement, agriculture will continue to trade tariff-free in North America, and Canada made some very slight concessions to open their notoriously closed dairy markets. The time wasted and uncertainty created by the Trump administration’s approach to NAFTA could have been avoided if the United States had simply ratified the Trans-Pacific Partnership, which includes both Canada and Mexico plus a host of other Pacific Rim countries like Japan. TPP went into effect without the United States at the end of 2018.
Like the Doha Round, the TPP would have been a huge benefit to American farmers and ranchers. For example, under terms of the original TPP, Japan agreed to cut its tariff on American beef from 38.5 percent to 9 percent, which would have benefited ranchers all over the country. The TPP moved forward this year without the United States, leaving American farmers left out. Japan and the United States have agreed to begin negotiations on a bilateral trade agreement, but negotiations haven’t begun yet. Like the NAFTA re-write, they also could face troublesome politics in Congress.
Though the United States is one of the world’s largest agricultural exporters, more can be done to help our farmers and ranchers find new buyers for their products. In 2019, the Trump administration should abandon its quixotic trade policies and move aggressively to open up foreign markets.
Image by Andre Nery