Subsidies, Tariffs and Trade Wars: A Terrible Harvest for U.S. Agriculture
Introduction
From abandoned international leadership to trade wars to record flooding, the last several years have been brutal for the American agriculture industry. Instead of thoughtfully addressing the problems, the response from policymakers has been woefully inadequate—and in certain cases, made serious reform more difficult.
Shortly after he was inaugurated, President Trump withdrew the United States from the Trans-Pacific Partnership (TPP), a trade agreement with 11 other Pacific Rim nations. The TPP cut tariffs on both sides of the Pacific, opened up Asian agricultural markets for American producers and provided an alternative market to China in the region—with a dispute resolution framework and the rule of law. While imperfect, the TPP was a potentially potent tool to establish supply chains outside of China and raise commercial standards in the region. Likewise, it would have been a major boon to American agriculture exporters who are desperate for new foreign market access. After the United States withdrew, the remaining members moved forward with the agreement and now American farmers and ranchers face higher tariffs than many of their competitors in a vital and growing region.
In 2018, President Trump began a series of trade wars with a number of countries—most prominently with China. Washington’s litany of complaints about Beijing’s trade policy practices were documented in a lengthy report issued by the United States Trade Representative (USTR), including forcing American firms to transfer technology to Chinese firms as a condition of entering the Chinese market, intellectual property abuse and theft of trade secrets. The crux of USTR’s argument is that many firms in China do not operate on market-oriented terms and enjoy lavish subsidies from the central government, and that such policies unfairly burden American firms who seek to access China’s market.
After the report, the United States imposed tariffs on a number of imported products from China. In turn, China retaliated with the brunt falling on agricultural products. The tariff retaliation between Washington and Beijing went back and forth a number of times before the two sides signed the so-called “Phase One” agreement in January 2020.
On top of the trade war with China, floods ravaged parts of the country in 2019, which delayed planting of a number of crops. As a result, the United States Department of Agriculture (USDA) reported that nearly 20 million acres of cropland went unused in 2019.7 In early 2020, COVID-19 spread around the globe and economies, including the United States, began to soften.
In response to declining foreign market access from the trade wars and the outbreak of the pandemic, Washington has heavily subsidized American agricultural producers. This policy brief will take stock of the current situation American farmers and ranchers face and make concrete recommendations for policymakers hoping to reform the unsustainable status quo.
