One thing that I know is that American farmers are not stupid. Those who have weathered the difficult financial instability, commodity fluctuations and land value shifts in the last 40 years are survivors.
Since the end of World War II, one of the clearest trends in American agriculture has been the growing reliance of the rest of the world on the productivity of America’s heartland. The result has been a consistent record of agricultural trade surpluses with foreign nations as this comparative agricultural advantage has borne fruit.
The United States has run agricultural trade surpluses since 1959. Minnesota has been in the first rank of exporters of grains, notably corn, wheat and soybeans, and of livestock products including pork, beef and poultry.
The recently announced tariffs imposed on Chinese steel and aluminum are the opening salvos in what may become a trade war between the two largest economies in the world. Within 24 hours of the U.S. tariff announcement, China responded that it would retaliate with a 25 percent tariff on U.S. pork and a 15 percent tariff on U.S. ethanol. Minnesota is one of the leading producers of both products. China is the third-largest export customer after Mexico and Canada for Minnesota’s hog producers.
According to the Center for Agricultural Research and Development (CARD) at Iowa State University, U.S. agricultural exports to China more than tripled from 2000 to 2015, from $51 billion to over $150 billion. About 60 percent of U.S. soybeans, a quarter of the nation’s annual production, go to China. Minnesota exports about half of its annual soybean crop. Grain and feed trade with China more than doubled from 2010 to 2015.
While producers of corn, Minnesota’s leading crop besides soybeans, are less reliant on China as an export destination, the tariffs on pork and ethanol will have indirect effects because the demand for corn is derived to a significant extent from the demand for pork and ethanol. Corn used to feed pork accounts for a major share of total sales, according to the U.S. Department of Agriculture, and ethanol now consumes about 40 percent of the U.S. corn crop. If Chinese tariffs cause the market for pork and ethanol to soften, so too will the market for corn.
Despite this profound reliance on the engine of international trade, much of which has relied on exchanges with China, many American farmers cast their lot with Donald Trump in the last election. This will prove to have been a devastating mistake in judgment. Setting aside his many pathologies, personal and political, Trump’s trade policies will lead to retaliation aimed precisely where American agriculture has shown a clear capacity to compete successfully in international markets. Chinese reaction to Trump’s tariffs on steel and aluminum, preceded by his actions on solar panels, invite retaliation in two of Minnesota’s most vibrant sectors, agriculture and renewable energy, and will raise prices for consumers in areas of the economy where we use more of these goods than we export.
The Great Depression of the 1930s was, according to distinguished economic analysts, far less a consequence of financial market crashes than the beggar-thy-neighbor tariff wars that were the direct consequence of the U.S. Smoot-Hawley tariff to restrict European imports and the ensuing tit-for-tat tariff escalation with Europe. Knowing and understanding nothing of this history, Trump has embarked on a remarkably reminiscent course of folly. This foolish path has also been reflected in his rejection of the Trans-Pacific Partnership (TPP), where, after the U.S. withdrawal from the agreement, the remaining nations have cinched accord, leaving us to pick up the crumbs. In the Paris climate negotiations, Trump’s rejection has similarly shown that any agreements will leave the U.S. out of the picture.
So it must be asked, after accounting for his tawdry diversions, whether Trump’s foolishness has not written a prescription for economic disaster. This question is of special importance to the hardworking producers in Minnesota agriculture, who depend on the international markets that many of us have spent our lives to protect and defend.
Carlisle Ford Runge was a special assistant to the U.S. trade representative in Geneva during the Uruguay Round of trade negotiations and is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota.