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Top Economist: Why Farmers Have the Most to Lose From Trump’s Trade War

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A farmer walks through land neighboring the US Customs and Boarder Protection complex where underage people caught illegally entering the United States are housed at the Tornillo Port of Entry June 19, 2018 in Fabens, Texas. Brendan Smialowski—AFP/Getty Images

War is messy, and President Trump is quickly figuring out that this also applies to trade wars. The president has incited a trade war that is taking the entire global economy, including ours, down the rabbit hole. Our farmers will be the most serious casualty if he doesn’t figure this out, and soon.

Farmers already know how messy the trade war can be. They are big exporters, shipping some $150 billion in agricultural products overseas each year. Well over one-third of everything they grow or raise is consumed by foreigners. The U.S. also imports a lot of food, but agriculture is one of the few industries that runs a sizable trade surplus. The industry is uber-productive and competitive. American farmers produce something everyone on the planet wants.

Nothing could be worse for farmers than a trade war. If other countries impose tariffs on U.S. soybeans, pork, or orange juice, it is a dagger in the heart of the business of being a farmer. This is exactly what China and our other trading partners are doing in retaliation to Trump’s trade war.

The president understands the economic and political fallout of his war on agriculture, and his response is to cut a $12 billion check to farmers. The emergency bailout from taxpayers will become available in September, and does not need approval from Congress. Some farmers will get direct payments, but the money will also go to fund a program already in place to purchase surplus farm products and distribute them to food banks. Marketing efforts to promote U.S. agricultural products overseas may also get more funding.

To get a check, farmers will likely have to go hat-in-hand to Washington. This is what manufacturers are doing now to get relief from Trump’s steel and aluminum tariffs. They are in the awkward position of trying to convince Trump-appointed bureaucrats that they deserve a reprieve from the tariffs. Farmers will love that (not), particularly since the money they ultimately pry from Washington will be way too little, too late.

It’s still a low-intensity war, at least so far, with tariff hikes on about $100 billion worth of imported goods into the U.S. from foes like China, as well as friends, including Canada, Europe, Japan, and Mexico. But the president has threatened to significantly escalate the war, imposing higher tariffs on all imports from China and on auto imports—in all, about one-third of all that we import.

Our trading partners aren’t taking this lying down, and have matched Trump’s tariffs one-for-one on U.S. exports to their countries. The Chinese have also allowed their currency to fall in value against the dollar, offsetting some of the bite of higher U.S. tariffs. And they’ve imposed non-tariff measures such as stiffer inspections on U.S. agricultural products arriving at Chinese ports.

So much for the president’s haughty pronouncement that a trade war would be easy to win.

Complicating things for U.S. farmers is that they are convenient political targets for our aggrieved trading partners. Rural America tends to be Trump country, voting in high percentages for the president in the election. Other countries rightly figure there is no better way to gain leverage with Trump than to make life difficult for those who vote for him.

The strategy is working. Trade groups looking out for the farmers’ interests are complaining increasingly loudly about the tariffs. They may be politically sympathetic to the president, but they need the trade war to end.

Adding to their angst, the nation’s farm belt is already struggling financially. Even before the trade war broke out, prices for most agricultural products were down almost 20% from the peaks of a few years ago. Farmland values reflect the stress; they have gone nowhere over the last four years. If farmers export less of what they produce because of the tariffs, their financial problems will quickly mount.

 

The president holds out hope that the trade war is a negotiating ploy to pry concessions from the rest of the world. Be patient, he says. But if it is a negotiating ploy, and everyone knows it, how good a ploy could it be? Does anyone think that the Chinese or any other trading partners fail to understand what the president is up to?

Trump did just negotiate a truce with the Europeans, but to what end? He got nothing for all the bother except a promise from the Europeans to keep talking. Even if the U.S. and Europe dropped all of their tariffs on each other—the president’s stated objective—it will have no meaningful impact on our economy. The differences in tariffs across all trade between the U.S. and Europe are not large enough to matter.

No doubt, China is a problem. It flouts the rules, particularly when it comes to giving U.S. companies access to its market or respecting their intellectual property. But threatening an escalating trade war only threatens the economic success of both countries.

Hopefully our farmers won’t be silenced by $12 billion and keep the pressure on Trump to end his trade war. They may be the only reasoned voice he will listen to.

Mark Zandi is chief economist at Moody’s Analytics.