Bad agricultural trade policies predate Trump
While President Trump’s trade policies have been problematic, the system he inherited is rife with trade-distorting subsidies and other forms of protectionism.
Looking to atone for the protectionist sins of the Smoot-Hawley tariffs, which raised about 900 import levies just as the U.S. was sliding into the Great Depression, Roosevelt administration Secretary of State Cordell Hill believed that economic interdependence and a global trading system would help promote a lasting peace after World War II. It was with Hull’s vision in mind that trade negotiators from the U.S. and 22 other countries convened in Geneva, Switzerland, in spring 1947.
At that time, the average tariff of participating countries was 22%. What emerged from these negotiations was the General Agreement on Tariffs and Trade. Since that time, the overall trajectory of trade policy has been toward a global system based on predictable rules that mitigates skirmishes and prevents full-fledged trade wars. Over the course of multiple successful negotiations, known as “rounds,” more countries were added to this system, and trade barriers were continually reduced. Today, the average applied tariff of the 164 members of the World Trade Organization, the successor to GATT, is just 9%.
But most of the reduction in trade barriers focused on cuts to industrial tariffs. Few agriculture tariffs were capped, and export subsidies were permitted for agricultural products. Despite multiple negotiating rounds, agriculture trade was still a mess — rife with tariffs and other non-tariff barriers. By the 1980s, subsidies to farm producers in developed countries had caused a massive surplus, which was then sold around the world at depressed prices. This trade distortion undercut local markets.
During the Uruguay Round, the negotiation that took place between 1986 and 1993, signatory countries radically altered the GATT system. Most notably, the GATT was transformed into the World Trade Organization. Among other changes ushered in by the Uruguay Round was the creation of binding dispute settlement between countries. Also included was the Agreement on Agriculture. For the first time, WTO members agreed to cap their trade-distorting agricultural subsidies and cut tariffs. The U.S., for instance, agreed to cap its most trade-distorting subsidies at $19.1 billion annually.
While the Agreement on Agriculture was a good start, it does not go nearly far enough. Regrettably, the Uruguay Round was the last successful multilateral round at the WTO. Today, agriculture remains one of the most heavily protected industries in the world.
Shortly after the Sept. 11 terrorist attacks, the U.S. convinced WTO members to launch the Doha Development Round. The overarching goal of the Doha Round was to liberalize trade in agriculture to help developing countries reach new export markets, which is instrumental to their growth and development. Over the course of the next seven years, members negotiated the Doha Round but to no avail. By 2008, it was apparent that the Doha Round would fail. Though there are several causes of Doha’s regrettable demise, a major culprit was the unwillingness by the U.S. and European Union, the richest WTO members, to cut their domestic agriculture subsidies. After negotiations laid dormant for several years, WTO members pulled the plug on the Doha Round in late 2015.
This is regrettable. A 2006 study from the Congressional Budget Office found that if trade distortions across the globe were eliminated, the annual benefit to the world could be as high as $185 billion. The potential upside of truly liberalizing trade in agriculture is too great to ignore. As the world’s largest and most important economy, the U.S. has an enormous bargaining chip to play in future multilateral negotiations, provided it can summon the will to cut its own domestic agriculture subsidies.
Not only would paring back domestic subsidies help facilitate growth in agricultural exports for American farmers and ranchers, but it also would benefit taxpayers who are on the hook for a nearly $900 billion farm bill over the decade, whose subsidies flow primarily to the largest corporate farms. According to a recent report by the Environmental Working Group, “Between 1995 and 2016, the top 10% received 77% of all ‘covered commodity’ subsidies,” and “the top 1% received 26% of all subsidies or $1.7 million per recipient.” Likewise, by encouraging overproduction and planting on marginal areas like wetlands, the domestic subsidies hurt the environment.
Unwinding the Trump trade wars is necessary, but not enough to secure the future of American agriculture. The real hurdle to expanded market access abroad is the domestic subsidies at home.