The past few years have been trying times for America’s farmers and ranchers. As President Trump’s trade war with China drags on with no end in sight, the outlook for the American agricultural sector, deeply dependent on expanded market access abroad, gets ever bleaker.
Within a few days of his inauguration, Trump formally withdrew the United States from the Trans-Pacific Partnership, a promising trade pact between Pacific Rim nations that would have been a boon for domestic agriculture. By cutting agricultural tariffs and reducing quotas, the TPP made significant progress in opening notoriously closed Asian markets. The remaining TPP countries moved forward with the agreement after the U.S. withdrawal. As a consequence, American farmers and ranchers now face higher barriers than their competitors in lucrative markets like Japan.
As if that weren’t bad enough, American farmers and ranchers face an uncertain future in China’s enormous market. The Trump administration correctly identified legitimate problems with China’s trade policy practices in last year’s report by the U.S. Trade Representative, including cyberintrusions into commercial networks, theft of trade secrets, intellectual property abuses, and forced technology transfer, among other charges.
But rather than use the report’s findings to pursue a thoughtful, comprehensive strategy with like-minded allies, the Trump administration waged an aggressive, undisciplined tariff war that has done little to change Beijing’s behavior while imposing big costs on Americans.
Despite the president’s claims, American consumers, families, and businesses, are paying the tariffs, which have triggered predictable retaliation from Beijing that has fallen particularly hard on American agriculture.
In 2017, the year before the trade war began, Chinese buyers imported approximately $19.5 billion worth of American farm products. In 2018, due to Beijing’s retaliatory tariffs, American farmers and ranchers sent less than half that amount to China (a little more than $9 billion). Soybean exports to China, for instance, fell from approximately $12.2 billion in 2017 to $3.1 billion in 2018. Likewise Bloomberg recently reported, “U.S. farm income dropped 16 percent last year to $63 billion, about half the level it was as recently as 2013.”
Now comes China’s announcement that it will stop purchasing all American agricultural products, in response to the president’s threat to impose 10% tariffs on all remaining imports not subject to recent duties and the Treasury’s decision to label Beijing a currency manipulator. This is a serious blow to farmers and ranchers, who have spent years establishing themselves as reliable suppliers to the growing Chinese market. Along with our NAFTA partners in Mexico and Canada, China was one of the largest export destinations for American agricultural products.
According to the Department of Agriculture’s own estimates, every $1 billion in agricultural exports supports “approximately 8,400 American jobs throughout the economy.” If the approximately $9 billion in agricultural exports American farmers and ranchers sent to China last year are not purchased by other buyers, it could jeopardize more than 75,000 jobs.
To mitigate the damage from the retaliatory tariffs, the administration has dusted off a New Deal-era program to provide direct payments to farmers and ranchers who form a key political constituency for the president. Over the last two years, the bailout program doled out approximately $26 billion in domestic subsidies. Next year’s bailout package will likely need to be even bigger if Beijing follows through on its promises to completely cut off American agricultural access in China.
Even if the program were perfectly tailored and every farmer and rancher harmed by retaliation were made whole, a permanent bailout program is not sustainable. It hurts the environment, costs taxpayers dearly, likely violates our commitments to the World Trade Organization, and dims the prospect for future trade liberalization.
Though the Trump administration deserves the lion’s share of the blame for today’s mess, the domestic subsidy regime has been broken for decades. In fact, the unwillingness of the United States and European Union to agree to tighter limits on domestic subsidies certainly contributed to the unfortunate demise of the WTO’s Doha Development Round.
Drastically increasing domestic subsidies is exactly the wrong path for American farmers and ranchers, who are the most productive in the world. The future of American agriculture depends on opening markets, not closing them through tariffs and trade-distorting domestic subsidies.
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