Wall Street Journal - Trump’s Trouble in the Farm Belt
Farm welfare won’t substitute for lost foreign markets.
By The Editorial Board
May 23, 2019
The Trump Administration said Thursday it will give $16 billion to farmers to offset their lost income due to the trade brawl with China. The subsidies may buy some political time to resume negotiations, but they also underscore the economic harm and political risk of President Trump’s trade showdown.
America’s heartland is hurting as farm income has fallen due to low commodity prices, bad weather and flooding, and trade disruption, despite a buoyant national economy. The nearby chart shows the trend in agricultural GDP in three bellwether farm states since 2013.
The Bureau of Economic Analysis (BEA) reports that in 2018 Nebraska ranked 49th among the states in personal income growth per capita, Kansas was 46th, Missouri 33rd, and Iowa 25th. The contribution to personal income from agriculture last year was negative in other farm export states like Arizona, New Mexico, Oklahoma, California, Michigan and Illinois, according to the BEA. Wisconsin’s personal farm income gain was zero.
This means the trade fight has cost U.S. farmers a bundle when they least can afford it. In 2017 U.S. farmers sent 25%—some $140 billion—of production abroad. More than 17% went to China. But then the U.S. imposed tariffs against Chinese products, and Beijing retaliated with sizable tariffs on 90% of U.S. farm exports. American Farm Bureau Federation President Zippy Duvall says that “in 2018, U.S. agricultural exports to China declined $10 billion—about a 50 percent loss.”
China was once the second largest export market for U.S. agriculture but it’s now fourth. “This is a drastic reversal for what had been a growing market,” wrote Mr. Duvall in a recent letter to the President. “From 2000 through 2017, the value of our agricultural exports to China grew from 2 percent to 16 percent of total U.S. agricultural exports.”
American soybean farmers sent about 60% of their exports to China in 2017. But their Brazilian competitors pay a 3% Chinese tariff while Americans now pay 28%. In 2018 U.S. soybean exports to China fell 75%, and U.S. farmers had to cut prices to unload oversupply in other markets. The total value of soy exports fell $4.3 billion—a 20% decline.
Or consider pork exports, 40% of which has traditionally gone to Mexico and China. U.S. pork exports by volume to China dropped 58% in September 2018 from a year earlier and 80% since 2016. Mexico’s 20% tariff on U.S. pork exports, in retaliation for Mr. Trump’s steel tariffs, cost the pork industry an estimated $1.5 billion in 2018.
None of this comes as a surprise to Mr. Trump, who has been hearing complaints for months from his Farm Belt supporters. That’s why Mr. Trump is responding with the $16 billion in subsidies, most of which will be direct payments to farmers. These are in addition to the subsidies under traditional U.S. farm programs.
So in order to make up for losses from trade, Mr. Trump is dunning other American taxpayers. But as Bill Gordon, vice-president of the American Soybean Association, recently told the South China Morning Post, farmers don’t want welfare. “Here’s a handout to make you happy? That doesn’t make us happy. We want our markets back,” Mr. Gordon said.
The argument for enduring this pain is that it is the price of getting China to change its predatory trade practices. Short-term pain for some will lead to long-term gain for everyone. The game theory is that Mr. Trump has to show China’s Xi Jinping that he is willing to absorb more pain for longer than Mr. Xi can. But then the pain is in Kansas, not Washington.
Not long ago Mr. Trump said he wanted a China trade deal but lately he’s been suggesting he’d be as happy running for re-election in 2020 as the trade hawk who was willing to take on China. We wonder how Iowans will feel about that if farm incomes continue to decline for another 18 months.
Appeared in the May 24, 2019, print edition.
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