Tuesday, May 14, 2019

Paying the Price: Why American Farmers Have Become Trump's Trade War Casualties

by Nomad

There are always casualties in war, even in trade wars. As tit-for-tat tariff hikes between Trump and China begin to spin out of control, US farmers are already starting to feel the pinch. And it is likely to get much much worse.

According to an economist at the American Farm Bureau Federation, the latest retaliatory hike on US goods- estimated at $60 billion- will hit farmers “every single angle.”
Michael Nepveux told CNBC:
“The retaliatory tariffs placed on U.S. farmers from China are a net negative on the industry...We’re sitting at one of the lowest net farm incomes we’ve seen in over a decade. Farmers are having huge challenges even getting out onto the field in order to try and plant.”
Here's a CNN interview with Minnesota soybean farmer Bill Gordon. He tells Erin Burnett that rural communities are already feeling the effects from the tariffs.
Worse is yet to come.

Last August, Trump unveiled his safety net solution for farmers caught in the trade war crossfire. To help farmers impacted by retaliatory tariffs, the president authorized the Department of Agriculture to provide $6 billion in relief.  That number has steadily increased since that announcement. This bailout is likely to be extremely expensive before the peace returns to global trade. 

No matter what the cost of any relief plan, critics argue, it will not address the problem of permanently lost markets for American agricultural products. 
Even after the dust settles, American-China trade will be compromised for decades. Other nations like Brazil and Argentina have already rushed in to fill the vacuum.
Those fears about the long-term effects are not shared by Trump who tweeted that “trade wars are good, and easy to win.”

For historians, these events harken back to the days just before the Great Depression when Republicans in Congress passed the Tariff Act of 1930 (also known as the Smoot–Hawley Tariff). Signed into law on June 17, 1930, this protectionist trade policy raised U.S. tariffs on over 20,000 imported goods.  
The idea was dangerously simple: by raising taxes on thousands of imports no matter what country they came from, the act would protect American farmers and secure the nation’s economy.
That's not what happened.

In a mirror of our own time, the Act was followed by retaliatory tariffs by America's trading partners. This is, in turn, led to a reduction of American exports and imports by more than half during the Depression
Other countries responded to the United States’ tariffs by putting up their restrictions on international trade, which just made it harder for the United States to pull itself out of its depression. Imports became largely unaffordable and people who had lost their jobs could only afford to buy domestic products.
The stock markets- already traumatized by the crash a year earlier- plunged again. Global trade tanked 65 percent.
For this reason, many- but not all- economists and economic historians believe that the tariffs exacerbated the Great Depression.  

But Trump has no interest in learning the lessons of the past. He is confident that he knows more than all of the experts who have given him repeated warnings about the risks of trade wars.  
And it seems as though American farmers will pay the price for this misplaced self-confidence.