Trump’s trade deal with China is just another farm bailout
The last thing American farmers needed in 2018 was a trade war with China. Commodity prices had been falling since 2013, land values remained stagnant, and net cash income for farms was declining steadily, dropping 34% between 2012 and 2016.
By ensnaring the agricultural sector in a trade war that was supposed to be about intellectual property issues, the subsequent onslaught of tit-for-tat tariffs between Washington and Beijing, including Chinese retaliatory tariffs on virtually every U.S. farm product, made matters much worse. In the year preceding the trade war, U.S. farm exports to China totaled $19.5 billion. By the end of the following year, they had declined 53% to just $9.2 billion.
Certain products that are particularly reliant on trade with China took big hits: In 2018, soybean exports to China dropped 74% by value, hides and skins dropped 36%, and wheat dropped 70%.
Other indicators of the American agriculture sector’s health have also been trending negatively. Bankruptcy filings for farms have escalated, farm debt is projected to reach a record high, farmer suicides are on the rise, and heartbreaking stories of struggling family farms often make national news. This is why President Trump’s Dec. 13 announcement of a “phase one” trade agreement with China was met with hesitant optimism from the farm community.
The agreement reportedly includes a commitment by China to purchase at least $40 billion worth of U.S. farm products annually over a two-year period and “addresses structural barriers to trade” in agriculture. However, it leaves in place nearly all tariffs levied by the United States and China, including tariffs on American agricultural goods. It is no wonder, then, that in a particularly telling statement, Farm Bureau President Zippy Duvall noted that “farmers would much rather farm for the marketplace and not have to rely on government trade aid.”
The phase one agreement, if it materializes, could provide temporary financial relief to American agriculture and help some exporters regain lost market share. But this is a temporary solution with some serious downsides.
First, China has yet to confirm the $40 billion-per-year amount and has reneged on similar commitments in the past.
Even more problematic is the fact that the $40 billion commitment is a subset of a broader purchase agreement that requires China to increase its total imports of goods and services from the U.S. by $200 billion over two years. The agreement’s clear focus on forcing a reduction in the U.S.-China trade deficit is a misuse of American negotiating leverage, which could have been directed instead at removing agricultural tariffs. The inclusion of a purchase agreement was more likely designed to assuage Trump’s concerns regarding the supposedly nefarious nature of trade deficits rather than to help farmers regain access to the Chinese market.
Second, by favoring U.S. imports over those of other World Trade Organization members, the purchase agreement is likely inconsistent with basic WTO rules prohibiting discriminatory treatment between countries. (Ironically, China appears to care more about this snag than the White House.) If the U.S. expects to continue benefiting from the level playing field that is maintained by countries following WTO rules, it must also abide by those same rules.
Third, both the U.S. and China will need to make market adjustments so that purchases can actually add up to $40 billion per year. Achieving such a managed trade outcome may be difficult given that the all-time high for U.S. agricultural sales to China was only about half of that: $25.9 billion in 2012. To make the math work, China would likely need to shift purchases away from major suppliers such as Brazil, and Beijing will need to grant tariff waivers to companies so that they can bypass retaliatory tariffs. American producers may also need to be persuaded to shift exports away from countries where they do not face retaliation.
This is no small ask: Why would these producers give up newfound market shares in markets that are significantly less risky than China?
Finally, the most problematic point for the American agricultural sector: Much like the $28 billion the Trump administration has already doled out to farmers in taxpayer-funded trade aid, an $80 billion purchase agreement is a temporary salve on a self-inflicted wound — only this time, Chinese taxpayers are footing the bailout. The one bright spot is that, to the extent that the phase one deal does meaningfully address nontariff structural barriers in agricultural trade, the agreement could help facilitate longer-term market access for new farm products. Unfortunately, these benefits will be mitigated by the fact that China’s retaliatory tariffs remain in place.
American farmers simply want the ability to compete in China’s massive market once again. Billion-dollar bailouts and purchase agreements won’t achieve that outcome. Only removing barriers to trade will.
