President Donald Trump has recently seriously escalated the trade war with China. In addition, the Trump administration threatened to slap large, blanket tariffs on Mexico. The administration eventually backed off after announcing a new deal with Mexico but kept the possibility for future tariffs open.
While understandably to protect American workers, the trade wars are bad policy and will hurt farmers both in Georgia and across the country.
Trade wars occur when one country places restrictions like tariffs or quotas on imports from another country. The other country often retaliates with similar restrictive measures. The trade disputes make it more expensive for suppliers to sell their goods
Martin Gervais, an economics professor at the University of Georgia, argues that trade wars can be damaging.
“Trade wars tend to lower living standards of all countries involved,” Gervais said. “There are usually gains from trade (that come from comparative advantages), and tariffs and barriers prevent countries from fully taking advantage of these gains.”
In addition to being two of America’s largest trading partners, China and Mexico are particularly important agricultural markets for U.S. farmers. According to the Office of the United States Trade Representative, China is the fourth largest agricultural export market for American farmers, accounting for $9.3 billion in total exports in 2018. Mexico is an even more important market for American farmers. Agricultural exports to Mexico equaled $20 billion in 2018, making Mexico the second largest export market for American farmers.
Further, declines in agricultural exports to these countries would hurt several key components of the Georgia agricultural industry. The UGA Center for Agribusiness & Economic Development reports that cotton is the second largest ($901.5 million; 6.5% total), beef is the sixth largest ($596.6 million; 4.3% of total), and dairy is the ninth largest ($323.9 million; 2.4% of total) agricultural commodities in Georgia by value. One of the biggest agricultural exports to China is cotton ($924 million). Mexico imports $1.4 billion in dairy products and $1.1 billion in beef and beef products from the United States.
One of the major problems trade wars pose for farmers is that importers can simply buy the goods from somewhere else. Now that China has put tariffs on American agricultural goods, it may be cheaper for Chinese importers to buy food from other sellers.
“Countries (e.g. China) can drastically lower their demand of goods from countries who are subject to tariffs (e.g. US),” Gervais said. “From importers in, say, China, it makes no sense to import goods from the U.S. if they have to pay a tariff to do so.”
As Gervais warns, there is evidence that China will import agricultural goods from other countries. For example, China has levied a 25% tariff against American cotton, opening up opportunities for Indian and Brazilian competitors.
Also, although the Trump administration called off the tariffs for now, the lingering possibility of renewed tensions with Mexico or other nations will complicate farmers’ planting decisions. For example, corn farmers across the country, plagued by abnormally wet weather, had to choose between raising crops or taking the safer but less profitable crop insurance payout in the past few weeks. Uncertainties regarding trade conditions and the availability of foreign markets will only make choices like theirs more difficult.
To soften the blow to farmers, the Trump administration unveiled a plan to give farmers $16 billion in direct payments, but it is an imperfect solution. Although this payout will lessen the impact, many farmers believe it will not cover the losses from the trade war and want a trade agreement soon. President Trump has alluded that money from the Chinese tariffs will pay for the bailout, but the International Monetary Fund reports that the “tariff revenue collected has been borne almost entirely by US importers.”
Free trade is vital to agriculture. By starting trade wars with two of our biggest trade partners, the Trump administration has hurt the financial well-being of farmers both in Georgia and across the country. President Trump and his advisers should act quickly to avoid damaging the economy and inflicting more pain on the agricultural industry.