Harvesting another trade war
For about 70 years, the United States was the major architect and proponent of global rules-based trade. Through foresight and bipartisan persistence, the U.S. worked to lower trade barriers around the world and create frameworks and institutions to serve those purposes. Though imperfect, liberalized trade largely succeeded in making the world safer and expanding economic growth.
But with the election of Donald Trump in 2016 and continuing into the Biden administration, the push for trade liberalization has stagnated in the U.S. while the rest of the world moves forward with more global economic integration. Over time, this development will be costly for many industries, perhaps none more than the American farmers and ranchers who have faced an onslaught of newly erected trade barriers over the last few years.
First, the Trump administration withdrew the United States from the Trans-Pacific Partnership (TPP), which, among other things, opened notoriously closed Asian Pacific agriculture markets. The remaining members of the TPP moved forward with the agreement and renamed it the Comprehensive and Progressive for Trans-Pacific Partnership (CPTPP), leaving American agricultural producers less competitive in those markets.
Likewise, the Trump administration levied “national security” tariffs on imported steel and aluminum from virtually every country in the world, including long-standing allies. This triggered predictable retaliation, much of it focused on U.S. agricultural products.
Next, the Trump administration attempted to confront concerning Chinese commercial practices through the use of sclerotic tariffs. Those tariffs imposed massive costs on American consumers, triggered retaliation against the U.S. farm industry and, perhaps worst of all, failed to change Beijing’s behavior.
Now, in a continuation of the backward thinking of the previous administration, the Biden administration has said that trade liberalization will take a backseat to rebuilding the domestic economy. This is a false choice. Given the interconnectedness of the 21st century globalized economy, trade liberalization is a key tool to increase domestic economic growth. This is an especially acute problem for American farmers and ranchers.
Agriculture in the U.S. is so abundant that about 20 percent of it is exported to other countries. With 95 percent of the world’s consumers living outside the U.S., American farmers and ranchers are dependent on reaching foreign markets. Despite this imperative, trade liberalization has become a low priority for policymakers.
Yet it turns out that our own domestic subsidies are one of the largest impediments to more trade liberalization. For years, the United States has showered the agriculture industry with a vast array of subsidies that act as non-tariff trade barriers by artificially depressing U.S. prices and making other countries’ agriculture products less competitive in the domestic market. Likewise, subsidies can allow U.S. exports to distort global markets and undercut foreign competitors in markets abroad.
Simply put, foreign trading partners want more access to U.S. agriculture markets. Curbing domestic agriculture subsidies is perhaps the largest bargaining chip U.S. trade negotiators have to get other countries to open their markets to U.S. products, including agriculture. But our own subsidy regime is getting worse, not better.
To deal with the economic and political fallout of its ill-advised trade wars, the Trump administration provided multiple rounds of very costly farm bailouts and massive subsidies to mitigate the economic damage of the COVID-19 pandemic. Consequently, those subsidies distort international markets and potentially run afoul of the United States’ commitments at the World Trade Organization (WTO).
The possible consequences are severe. Should other countries raise the issue at the WTO, it could lead to lengthy litigation and, if found out of compliance, ensnare unrelated American industries into an unwanted trade skirmish if policymakers refuse to remove the offending subsidies.
The path forward is clear. Policymakers should remove the recently enacted tariffs and bailout payments as our trading partners drop their retaliatory tariffs on American agriculture products. Next, the U.S. must pursue negotiations to open up foreign markets for our ultra-competitive exporters aggressively, including agriculture, and liberalize trade for American consumers. That requires a firm commitment to discipline agricultural subsidies moving forward.
Ultimately, the 21st century globalized economy demands a leaner and greener agricultural safety net – one that provides ample support for small family farms, not large welfare programs for major agricorporations – and more global economic integration. In the coming years, U.S. policymakers will have a choice: They can begin to expand the benefits of international trade for farmers and ranchers or they can continue to muddle through, leaving markets untapped while sacrificing growth at the protectionist altar.
Clark Packard is a resident fellow and trade policy counsel at the R Street Institute.