Eating away at our trade defenses
As farmers from Michigan and Ohio, we understand how important both agriculture and manufacturing are to our states — and to all states. We’re proud of the products we grow and make in our nation’s agricultural and industrial heartland and we want our farms and businesses to be competitive and thrive.
That’s why we were alarmed by President Trump’s announcement that the United States will impose tariffs on imported steel and aluminum for national security reasons. Trade is vital to U.S. agriculture, with China, Korea, Mexico and dozens of other countries. American wheat farmers depend on export markets for half of every crop we grow. We are supported by the rules-based trading system but we also are vulnerable to retaliation.
Grubs at the roots
Let’s use a farming analogy. Crops need roots to survive. If grubs chew them off, the plant will die. That’s basically what could happen to global trade rules with these new tariffs.
The administration is using a justification that’s vital to the functioning of global trade rules called the essential security exception. The reason is simple — if there was no allowance for countries to restrict some trade for national security reasons then countries wouldn’t be able to agree to any trade rules. We don’t want U.S. defense contractors selling the best missile technology to our adversaries, for example.
However, exploiting this rarely used justification to protect domestic steel undermines it by inviting retaliation from steel and aluminum exporters and imitation from other countries to use the same excuse for their own security interests. Food security for example. The grubs will be ravenous.
Retaliation against U.S. exports
Retaliation is the immediate concern. Other countries won’t see this as a rightful use of security exceptions — they’ll see it as an attack on their industries and their workers, just as we do when other countries restrict wheat imports from the United States. Their industries will demand retaliation and they’ll get it. U.S. agriculture products are often first on the list.
The bigger concern may be the countries that see opportunity instead of getting angry. It’s not a difficult argument for a wheat importer to say that if America needs domestic steel to build ships and tanks, they need domestic wheat to feed their soldiers. The opportunities to restrict trade for national security reasons will only be as limited as the protectionist’s imagination. That will truly erode global trade rules as imitators demand protection throughout the world.
Certainly, countries like China have been chewing away at the roots of the global trading system for years by ignoring commitments. But the solution isn’t to get down in the dirt and start chewing ourselves: it’s to apply solutions that actually target the problem without destroying the whole field.
That’s why we supported the cases brought at the WTO against China’s policies on wheat, corn, and rice. That was getting tough on trade, because it targeted a trade problem, instead of creating one. We are pleased that the Trump administration continues to pursue those cases, but the precedent set by the steel and aluminum tariffs could erase any benefits.
Farmers will also get hurt by the direct effects of the tariffs.
In agriculture, we have some good years, but most years we have thin margins or worse. We’re also heavy users of steel and aluminum in our tractors, planters, sprayers, combines, grain bins, dryers, trucks, pivots, carts, augers, drones, etc.
Raising the prices of all those inputs could trim our thin margins. Then we have less to spend on all the great made-in-Michigan and made-in-Ohio products that are several steps removed from the blast furnace or smelter. And for all those Midwestern jobs making those products, they’d better hope foreign competitors don’t undercut them because the competitors’ inputs are now much cheaper.
We suppose if that were the case there would be calls for tariffs on those products too, again cutting away at our margins. So we have to ask — trade wars may be easy to win but what is the definition of a win, who are the casualties and how does the trade war end?
The remedy is worse
We sympathize with our friends in the steel and aluminum industries who are affected by unfair trade. Wheat farmers are dramatically affected by unfair trade, too. But this action doesn’t fix the problem, and actually makes it worse. The people who will be harmed will not be in China but will be consumers right here at home like farmers and others who rely on steel and aluminum products for their livelihoods. We also rely on global trade and a strong, rules-based system. Imposing these tariffs undermines that rules-based system and threatens U.S. wheat farmers.
David Milligan is treasurer of the National Association of Wheat Growers and a wheat farmer from Cass City, Michigan.
Doug Goyings is secretary-treasurer of U.S. Wheat Associates and a wheat farmer from Paulding, Ohio.
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