Trump, Trade and Ag

Wall Street Editorial,
Feb 10, 2017

Someone should tell Mr. Trump the damage that his trade policies are already doing to the rural and farm-state voters who put him in the White House.

This year the U.S. is expected to export $134 billion in agricultural goods, from pork to nuts to corn and much more. Exports contribute about 20% of U.S. farm income, and U.S. agriculture ran a $19.5 billion global trade surplus in 2015. The No. 1 state for exports is California, which is home to high-value crops like lettuce and grapes. But Mr. Trump carried 11 of the top 15 exporting states, including Iowa, Nebraska, Indiana and Texas.

The nearby table shows how much American farmers rely on exports. Some 72% of U.S. tree nuts are exported, and roughly half of all rice, soybeans and wheat. Rice is grown in solid Republican states such as Arkansas, Louisiana and Missouri; soybeans are cash cows for Illinois, Iowa and Minnesota. Root plants like ginseng are exported from Michigan and Wisconsin, mainly to China.

The second table shows that Mr. Trump’s protectionist threats are aimed at countries that are the biggest buyers of U.S. farm products. Of the top 11 U.S. export destinations, seven are in Asia and Japan and Vietnam are part of the Trans-Pacific Partnership that Mr. Trump abandoned in his first week. The Farm Bureau says that pact would have raised U.S. farm incomes by $4.4 billion by reducing trade barriers in these and other markets. Japan, with its high incomes and 19% average tariff on U.S. farm goods, is a particular lost opportunity.

Mr. Trump also says he might impose tariffs on China, which could invite retaliation. In 2015 China bought nearly $21 billion in U.S. agricultural goods, up 200% since 2006 and almost 15% of total U.S. farm exports.

Then there’s his threat to renegotiate the North American Free Trade Agreement, though U.S. farm exports have quadrupled to Canada and Mexico since Nafta took effect in 1994. The irony here is that Mexico made farm-trade concessions because it was so desperate for access to U.S. markets. A Nafta redo may be less favorable to Americans.

It isn’t clear if Mr. Trump will withdraw from Nafta, but recall what happened when the U.S. violated the deal in the past. When the U.S. closed the southern border to Mexican trucks in 2009, Mexico retaliated with tariffs that hit U.S. fruit and vegetable exporters hard. Growers lost market share and income until the truck dispute was settled.

Dairy exports to Mexico alone support some 30,000 American jobs, according to the U.S. Dairy Export Council, and many are manufacturing jobs in rural areas. Americans who lose their jobs in a Trump trade war may have a hard time understanding how this helps the working class.

Global competition has forced U.S. farmers to become efficient and productive, but the reality is that other countries have arable land and willing labor. They can replace U.S. agriculture in a tariff war. Australia has a trade deal with Japan, and exports Down Under will have an advantage over American beef and wheat. U.S. beef imports to Japan will face high tariffs that the Trans-Pacific deal would have phased out or reduced. Mexico has bilateral trade deals with Chile, the European Union and others, and may buy more from Canada.

The bigger political picture for the Trump White House is that U.S. agriculture is already struggling amid a strong dollar and declining export volumes. Net farm income dropped 15% to about $68 billion last year, the lowest since 2009, according to the Agriculture Department. Unless Mr. Trump wants to compensate with more taxpayer subsidies, the best way to boost incomes is to let farmers sell in more markets, not fewer.

One reason the U.S. benefits from free-trade deals is that America has among the lowest import barriers on earth (5% average for agriculture), so new agreements tear down levies abroad and open new markets. President Trump should consider that reality before escalating on trade—and betraying the Farm Belt voters who are relying on him to bring growth and opportunity.

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