Short-term “solution” will not solve the long-term trade problem
Some people argue that trade tariffs are great. If, for example, you are CEO of John Deere and your stock value goes up 4% when the President announced a $12 billion federal bailout for farmers suffering from the effects of the trade war, a policy of trade tariffs seems to bring real benefit to your company.
I have wondered since the announcement, “Who will get this bailout? Probably not the ones who need it.” The bump in John Deere stock value reaffirmed my concern.
For months we have listened to rhetoric that the trade war against China was due to their theft of U.S. technology. Then in early July the U.S. placed additional tariffs on $34 billion of Chinese exports, leading to retaliation from China targeting U.S. corn, soybeans, pork and other crops.
On July 24th the US Department of Agriculture (USDA) announced that, “President Trump directed Secretary Perdue to craft a short-term relief strategy to protect agricultural producers while the Administration works on free, fair, and reciprocal trade deals to open more markets in the long run to help American farmers compete globally. Specifically, USDA will authorize up to $12 billion in programs. These programs will assist agricultural producers to meet the costs of disrupted markets.”
On August 26th, the USDA unveiled its plans to allocate this $12 billion to those farmers affected by the trade war. Unfortunately for all Americans the total cost of the trade war is unlikely to be mitigated by $12 billion in programs for farmers, the majority of which will benefit Midwestern soybean producers.
The USDA will use its authority under the depression-era Commodity Credit Corporation (CCC) program to offset the cost of the trade war by:
- Providing payments to farmers for soybeans, sorghum, corn, wheat, cotton, dairy and hogs.
- Purchasing surpluses of fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks.
- Developing new export markets.
The announced program will have narrow benefits for a select number of farmers and their supporting industries. It is naïve to assume that we can calculate the trade war costs, ignoring the impact of other market factors like over-supply from previous years of production, low market demand domestically, and international market changes outside of China.
Unsurprisingly, long-term problems are arising from the trade war with China. The USDA’s bailout package will only hide the short-term costs while it adds to the long-term harm.
These long-term problems from the trade war include lost export markets as our competitors fill the void for China with more affordable non-tariffed goods and as China grows its agricultural industry to bypass the need for US grown commodities. Additionally, the proposed CCC program unintentionally pays farmers for crops they have never grown and incentivizes farmers to continue growing crops with no market destination.
Farmers would be better off if the tariffs were removed instead of more added and they were allowed to enter the free market. According to critics, President Trump’s bailout “is trying to put farmers on welfare.” And as Congresswoman Cathy McMorris Rodgers said in regards to the announcement, “Farmers want trade, not aid.”
Unfortunately for Washington state, our position in the trade war is even more precarious. Many of Washington’s 300+ crops will be affected by non-tariff barriers, including increased inspections, delays at the dock, shipment rejections, and lost markets.
As one of the most trade dependent states in the nation, many Washington state jobs and companies will be hurt by the tariffs and will receive no relief. As Congressman Newhouse said in March, “Trade supports jobs in Central Washington, and 40 percent of jobs in our state are tied to international trade. Tariffs are essentially taxes on trade that are passed on to American businesses and consumers, resulting in higher prices.”
The reality of Congressman Newhouse’s statement is being felt as 95 workers were hurt by the latest round of lay-offs at REC Silicon, a Moses Lake-based polysilicon technology company. More families will experience layoffs if the tariffs against China continue.
Unfortunately, for these families, the $12 billion bailout going to farmers won’t help them at all, nor will it cover the long-term costs felt by farmers, companies, and Washington families as America’s trade war lingers on. Washington families and farmers will benefit when the tariffs are removed and trade is promoted.