It’s a bloodbath out there in the U.S. agricultural sector. From the Midwest to the Southeast, farmers across the country cannot seem to catch a break, whether it’s because of the weather or public policy. An international trade war is the last thing domestic agriculture needs right now.
Florida’s iconic orange industry is in a depression. The Sunshine State’s orange harvest is at a 50-year low, producing just 49.6 million tonnes in the 2016-2017 season. Farmers have been reeling from significant weather events, tumbling orange juice sales, and citrus greening – a bacterial disease that causes fruit to fall before they are ripe enough to be picked.
The U.S. Plains region isn’t faring any better. Wheat growers have been unable to take advantage of higher prices, which have spiked more than 16% year-to-date. Because of higher-than-normal temperatures, competition from Australia and Russia, and the global supply glut, many farmers are transitioning to the much easier to grow cotton, leaving wheat output to foreigners.
Ditto for meat and dairy farmers, a sector that has been slumping amid falling sales. Beef sales, for instance, have plunged more than 20% over the last 12 months. Dairy revenues are also plummeting, with falls in the double digits.
And it’s only going to get worse for the most vulnerable as the world embarks upon a trade war.
US Farmers Are Victims of Retaliation
President Donald Trump recently announced that the U.S. government would be slapping tariffs on steel and aluminum imports from Canada, Mexico, the European Union (E.U.), and elsewhere. Of course, these jurisdictions participated in foolish retaliation, targeting particular American goods with their own steep tariffs and import restrictions.
In total, close to one-fifth of the $140 billion in annual U.S. farm exports will take a hit by retaliatory tariffs.
Canadian Prime Minister Justin Trudeau confirmed his government will impose tariffs on $16.6 billion worth of goods, ranging from coffee to orange juice to cucumbers. It could get worse because the Trump administration has hinted that it might retaliate to the retaliation – will Trudeau then retaliate to retaliate for that retaliation?
The E.U. is finalizing a list to “rebalance” tariffs on $3.4 billion worth of U.S. goods, mostly agriculture. European Commission Vice-President Maros Sefcovic said the list, which will include orange juice, cranberries, peanut butter, and bourbon, will be completed this month and go into effect in July.
Mexico will institute a 20% tariff on about $1 billion worth of U.S. pork imports: legs and shoulders, fresh and frozen, bones and without bones. In 2017, Mexico imported more than 650,000 tonnes of pork legs and shoulders. With the new levies, two trends are expected to occur: higher prices and reduced consumption.
U.S. agriculture is on the edge of its seat as farmers are waiting to see if China, the world’s second-largest economy, will pull the trigger on a 25% tax on soybean, cotton, corn, wheat, and beef. Soybean producers were not pleased by the news that the Chinese government has engaged in a five-year plan to boost domestic soybean output, extending subsidies to farmers across the country.
Protectionism is Destructionism
In his weekly radio address in August 1985, then-President Ronald Reagan warned about the dangers of placing tariffs and quotas on foreign shoe imports. He explained that protectionist policies always lead to long-term hidden costs that make protected industries weaker and harm the consumer.
He told the nation:
“Instead of protectionism, we should call it destructionism. It destroys jobs, weakens our industries, harms exports, costs billions of dollars to consumers, and damages our overall economy.”
Unfortunately, 30 years later, we’re still having the same discussion. It is truly déjà vu all over again.
When former President Barack Obama applied tariffs on Chinese tires in 2009, the economic powerhouse installed penalties on U.S. chicken imports, resulting in $1 billion worth of lost revenues and thousands of job losses. Meanwhile, the U.S. tire industry shed 5,000 jobs between 2009 and 2016 because of about $1.1 billion in higher prices that consumers refused to pay.
The U.S. agricultural sector will inevitably endure the same thing, possibly even worse in the coming months or years. President Trump has vowed to the “great patriots” of the Midwest that he will “make it up” to them. It remains to be seen if it’s in the form of subsidies or state-guaranteed loans. Either way, it essentially offsets any potential gains that he has promised because taxpayers will be left to foot the bill.
If it isn’t clear by now, nobody wins in a trade war. The 18th-century trade practice only produces tumultuous conditions, not even the protected industries go unscathed. Everyone suffers. As Bette Davis deliciously told her guests in All About Eve: “Fasten your seatbelts. It’s going to be a bumpy night.”
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