With trade wars raging and massive subsidies flowing primarily to the largest corporate farms, American agriculture stands at a crossroads. Thankfully, there is a better alternative to the broken status quo, but it requires President Trump to rethink his approach.
Shortly after taking office, Trump withdrew the United States from the Trans-Pacific Partnership, a promising trade pact with Pacific Rim nations. The Trans-Pacific Partnership would have made meaningful progress in opening notoriously-closed Asian agriculture markets for American farmers and ranchers.
The remaining members of the Trans-Pacific Partnership moved forward with the agreement, leaving American agriculture producers at a disadvantage in a fast-growing region of the world. The proposed alternative, a so-called mini deal with Japan, can ease this strain by giving American agriculture exporters roughly equivalent market access that the Trans-Pacific Partnership members enjoy. But withdrawing from the Trans-Pacific Partnership was still an enormous unforced error on the president’s part.
Likewise, Trump has unnecessarily jeopardized agricultural market access in Mexico and Canada by threatening to withdraw from the North American Free Trade Agreement. Only after being convinced of the potential damage that he would inflict on American farmers and ranchers did the president back off his pledge to withdraw from the successful pact, instead renegotiating the agreement, which is now known as the United States-Mexico-Canada Agreement. The USMCA faces an uncertain future in Congress: House Democrats are demanding changes to the agreement, and the specter of impeachment looms large.
It’s unclear whether the president would still withdraw from NAFTA if Congress fails to ratify the USMCA. But make no mistake: Losing tariff-free access to Mexican and Canadian markets would devastate American agricultural producers.
Trump’s trade dysfunction does not end there. Beginning in early 2018, the president’s protectionist trade policies — which include hitting close allies with “national security” tariffs on steel and aluminum and an aggressive, unilateral trade war with China — have sparked widespread retaliation against U.S. agricultural exports.
Soybeans sent to China used to face a 3% levy, now U.S. soy farmers face a 28% percent tariff when selling to China. The retaliatory tariffs are really starting to bite: In the 2017 fiscal year, American farmers and ranchers exported about $22 billion of agriculture to China, but projections suggest that agricultural exports to China will fall to just $6.5 billion for the 2019 fiscal year.
To mitigate the damage to farmers and ranchers, the Trump administration dusted off a New Deal-era program to provide nearly $30 billion of trade-distorting subsidies to certain agricultural producers. These payments are on top of a nearly $900 billion farm bill that passed at the end of 2018, which provides more trade-distorting subsidies, damages the environment, and hammers taxpayers at a time when the federal government is already swimming in red ink.
Agricultural subsidies distort trade by artificially lowering prices domestically and making foreign exporters uncompetitive in the U.S. market. In fact, the World Trade Organization’s Doha Development Round, which sought to liberalize agricultural trade as a way to promote economic growth in developing countries, largely broke down over the U.S.’s and the European Union’s unwillingness to make significant cuts to agricultural subsidies. Developing countries such as India backed away from negotiations when it became clear the richest countries in the world were unwilling to tackle their own domestic non-tariff trade barriers.
Given U.S. technological advantages, American farmers and ranchers would be the biggest winners of widespread multilateral liberalization of agricultural trade. If the U.S. wants to reignite a similar effort, we must be willing to pare back our domestic agricultural subsidies and abandon our current misguided approach.
There is a better way. The U.S. should rejoin the the Trans-Pacific Partnership and eliminate recently enacted tariffs in order to eliminate foreign retaliation. Likewise, policymakers should cut domestic subsidies in order to jump-start multilateral negotiations on agricultural trade at the World Trade Organization with the bonus of protecting the environment and alleviating the burden on taxpayers.
A forward-looking agriculture policy for the U.S. must focus on opening international markets for American producers, protecting the environment and taxpayers. We have a long way to go, but the blueprint is crystal clear.