No One Wins in a Trade War, Especially not American Farmers

Amanda M. Countryman August 1, 2018

Farmer scouting and inspecting weeds in soybean fields.

The Trump admin­is­tra­tion plans to give Amer­i­can farm­ers and ranch­ers hurt by the cur­rent trade war US$12 bil­lion in emer­gency relief to mit­i­gate the impact of tar­iffs on their exports. 

While this may lessen the blow of an already strug­gling agri­cul­tur­al econ­o­my in the short run, it is only a Band-Aid. As an agri­cul­tur­al econ­o­mist, I know that no one real­ly wins in a trade war. As some­one who grew up on a cot­ton and alfal­fa farm in rur­al Ari­zona, I know first­hand that pro­duc­ers want access to mar­kets – not gov­ern­ment handouts. 

If the trade con­flict with Chi­na con­tin­ues much longer, it will like­ly leave last­ing scars on the entire agri­cul­tur­al sec­tor as well as the over­all U.S. economy.

A tit-for-tat trade war

How did we get here? 

In Jan­u­ary, the Trump admin­is­tra­tion placed tar­iffs on Chi­nese solar pan­els and wash­ing machines to pro­tect U.S. man­u­fac­tur­ers. It fol­lowed that in March with tar­iffs on all imports of steel and alu­minum – cit­ing nation­al secu­ri­ty con­cerns. Though many coun­tries were sub­se­quent­ly exempt­ed from the U.S. import tar­iffs on steel and alu­minum, Chi­na was the pri­ma­ry tar­get.

Chi­na respond­ed by impos­ing tar­iffs on U.S. exports worth $3 bil­lion in April as coun­ter­mea­sures to U.S. tar­iffs. Anoth­er round of U.S. duties on Chi­nese prod­ucts prompt­ed addi­tion­al retal­i­a­tion from Chi­na in July on $34 bil­lion worth of U.S. goods, fur­ther­ing a tit-for-tat trade con­flict with no end in sight.

Chi­na is the sec­ond-largest export mar­ket for U.S. agri­cul­ture behind Cana­da, which means it’s no sur­prise that such goods made up the vast major­i­ty of the more than 600 prod­ucts that have been tar­get­ed by Chi­na with tar­iffs of 15 per­cent to 25 per­cent in two rounds of retal­i­a­tion. Among them are cot­ton, wheat, dairy, wine, fruits, nuts, soy­beans and pork – to name just a few.

Caught in the crossfire

Since China’s tar­iffs only recent­ly took effect and more retal­i­a­tion could hap­pen, it’s still too ear­ly to ful­ly under­stand the poten­tial dam­age. But U.S. farm­ers and ranch­ers are brac­ing for the worst. 

For exam­ple, Chi­na is the world’s largest con­sumer of soy­beans, gob­bling up about 65 per­cent of all trade of the com­mod­i­ty. The Chi­nese bought more than $12 bil­lion in Amer­i­can soy­beans in 2017, or 57 per­cent of all U.S. exports of the crop.

Thanks to the 25 per­cent tar­iff on U.S. soy­beans, Chi­nese importers have been can­cel­ing con­tracts with Amer­i­can farm­ers for lat­er in the year and buy­ing more from Brazil – which is expect­ed to soon be the world’s top soy­bean producer.

A recent study sug­gests that if the tar­iffs stay in place, U.S. exports of soy­beans could fall 24 per­cent to 34 per­cent, while pro­duc­tion could decline 11 per­cent to 15 percent. 

The extent of the impact depends on whether U.S. soy­bean farm­ers are able to find new mar­kets for their crops. In addi­tion, because Chi­na con­sumes so many soy­beans – which it pri­mar­i­ly uses for live­stock feed – it prob­a­bly can’t cut out U.S. pro­duc­ers entire­ly. Chi­nese importers will sim­ply have to pay more for U.S.-sourced soy­beans to meet domes­tic demand. 

The pork indus­try, which was already sub­ject to tar­iffs before the trade war began, has been espe­cial­ly hard hit. After suc­ces­sive rounds of tar­iffs, U.S. pork is now sub­ject to Chi­nese duties of as high as 70 percent. 

Pork sales to Chi­na account for 10 per­cent of total U.S. exports of that prod­uct cat­e­go­ry. Since Chi­na already pro­duces about 97 per­cent of the pork it con­sumes, it should be rel­a­tive­ly easy for the Chi­nese to sim­ply sub­sti­tute domes­tic and oth­er for­eign pro­duc­tion for the U.S. imports. 

While many U.S. pork pro­duc­ers may be able to find new mar­kets for their goods, that prob­a­bly won’t be the case for offal, which are pig parts such as organs and entrails. Chi­nese con­sumers con­sid­er offal a del­i­ca­cy, while it is just used an input for pet food in the U.S. The tar­iffs have already erod­ed U.S. exports of pig parts to China.

Some of my own research focus­es on Chi­nese demand for West­ern wine and how retal­ia­to­ry tar­iffs could hurt the U.S. wine indus­try, which sees Chi­na as a very impor­tant growth mar­ket at a time when oth­ers are stag­nat­ing. My col­lab­o­ra­tor and I esti­mate that the new 15 per­cent tar­iff on Amer­i­can wine could cause a 10 per­cent drop in imports to China. 

If the trade war esca­lates, the harm could get even worse. For exam­ple, Chi­na is the biggest buy­er of U.S. exports of ani­mal hides – which haven’t yet been hit by retal­ia­to­ry tar­iffs but could be in anoth­er round. And the impact is being felt across the U.S., with at least some work­ers in pret­ty much every state affect­ed by agri­cul­tur­al and oth­er tariffs.

Trade conflict’s long-term impact

The con­se­quences of a pro­longed trade war could be severe for U.S. agri­cul­tur­al producers. 

As the tar­iffs make the cost of U.S. crops and meat go up for Chi­nese cus­tomers, they’ll begin to import prod­ucts that are rel­a­tive­ly cheap­er from oth­er coun­tries such as Brazil.

Chi­na might also dri­ve up their own domes­tic pro­duc­tion of cer­tain prod­ucts – such as pork – thus depriv­ing Amer­i­can farm­ers of the export mar­ket. Or in the case of wine, U.S. pro­duc­ers were already at a dis­ad­van­tage to their French and Aus­tralian rivals. A pro­longed trade dis­pute could lim­it Amer­i­can wine­mak­ers’ exports to a promis­ing market. 

If Amer­i­can agri­cul­tur­al pro­duc­ers can’t increase exports to oth­er coun­tries to make up for lost sales to Chi­na, farm incomes would most cer­tain­ly fall. And even if they do man­age to find new mar­kets, per­haps with the help of the new gov­ern­ment aid pack­age, it’ll be hard to make up for the world’s largest mar­ket for food imports.

Will the aid help?

As for the Trump administration’s promised aid pack­age, the U.S. Depart­ment of Agri­cul­ture said on July 24 that it would divide $12 bil­lion among three pro­grams that will: 

  • pro­vide pay­ments to pro­duc­ers of soy­beans, sorghum, corn, wheat, cot­ton, dairy and hogs

  • pur­chase sur­plus com­modi­ties such as fruits, nuts, rice, legumes, beef, pork and milk for dis­tri­b­u­tion to food banks and oth­er nutri­tion programs

  • devel­op new export mar­kets for farm products. 

While key details about the aid pack­age still need to be worked out, fun­da­men­tal­ly it is an attempt by the admin­is­tra­tion to soft­en the blow of how oth­er coun­tries are respond­ing to its pro­tec­tion­ist trade poli­cies. It may pro­vide some short-term relief for U.S. farm­ers and ranch­ers at a time when net farm incomes are at a 12-year low. The effort is futile, how­ev­er, if the trade con­flict is not resolved soon because of the last­ing dam­age to trade relationships. 

Fur­ther­more, the aid pack­age may vio­late U.S. com­mit­ments to the World Trade Orga­ni­za­tion, adding to the list of con­cerns of poten­tial vio­la­tions of the rules-based trad­ing sys­tem the U.S. has agreed to adhere to.

Dam­age to a market

In the last decade, Chi­na has become an incred­i­bly impor­tant mar­ket for Amer­i­can agri­cul­ture. U.S. pro­duc­ers would like to not only main­tain, but grow Chi­na as a mar­ket, giv­en its large con­sumer base and ris­ing incomes, which afford increas­ing per capi­ta con­sump­tion and demand for U.S. agri­cul­tur­al products. 

In my expe­ri­ence as an econ­o­mist root­ed in agri­cul­ture, U.S. farm­ers and ranch­ers pre­fer to be able to sell their goods to con­sumers around the world rather than receive gov­ern­ment aid because of a trade war in which they’ve been caught in the cross­fire. They want their gov­ern­ment to help them find more con­sumers, not turn them away.

(Amer­i­can farm­ers want trade part­ners not hand­outs – an agri­cul­tur­al econ­o­mist explains” was orig­i­nal­ly pub­lished on The Con­ver­sa­tion and was repub­lished on Rur­al Amer­i­ca In These Times thanks to a Cre­ative Com­mons License.) 

Aman­da M. Coun­try­man is an agri­cul­tur­al econ­o­mist at Col­orado State Uni­ver­si­ty. Her research employs com­putable gen­er­al equi­lib­ri­um mod­el­ing tech­niques to inves­ti­gate the eco­nom­ic impli­ca­tions of inter­na­tion­al trade pol­i­cy, focus­ing specif­i­cal­ly on the impacts of trade reform on agri­cul­ture. She inves­ti­gate issues relat­ed to the World Trade Orga­ni­za­tion as well as bilat­er­al and mul­ti­lat­er­al trade part­ner­ships, non­tar­iff bar­ri­ers to trade, the role of agri­cul­tur­al trade pol­i­cy on pover­ty as well as trade issues relat­ed to live­stock and meat sectors.
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