Considerable attention has been paid to the harm American agriculture could suffer from a trade war with China. Little has been said of another threat, at least as great — a threat to the capacity of America’s farmers and agribusinesses to hire the workers they need to maintain America’s world-class agriculture.
The primary economic effects of the tariff war with China fall on the demand side: Tariffs imposed by China on U.S. exports of soybeans, pork, dairy products, nuts, fruits and vegetables will restrict American farmers’ access to one of the world’s burgeoning middle-class markets. China is the chief export destination for American soybeans, and soybeans are our top agricultural export worldwide, worth $25.6 billion in 2017, compared with less than half that for No. 2, corn.
In the face of U.S. tariffs, China will seek other suppliers, not just of soybeans, but of all of our agricultural products, including dairy, which were beginning to establish an export footing. In response to U.S. tariffs on aluminum and steel, Mexico also responded in early 2018 with retaliatory tariffs on U.S. dairy products. In a June 26 letter to the White House, U.S. Chamber of Commerce Vice President John G. Murphy described the effect as a “dairy disaster.”
Whether President Donald Trump has any true understanding of his rural agricultural base is unclear; he has spent almost none of his life anywhere near it.
The Wall Street Journal’s Heather Haddon noted in a July 5 article that Mexico was the No. 1 destination for U.S. cheese exports, accounting for 28 percent of the total in 2017. Over the last decade, the value and volume of cheese exports to Mexico tripled. Today, as a result of the gluts in U.S. domestic production seeking a vent for export, there is more cheese in cold storage than at any time since the U.S. Department of Agriculture began keeping track in 1917. Meanwhile, the result of opportunistic European Union negotiations with Mexico, responding to Trump’s protectionist stance, is that European cheese (which confronts similar problems of oversupply) will enter the Mexican market duty-free.
China, for its part, has clearly targeted its tariff retaliation to those congressional districts that most enthusiastically endorsed the trade war rhetoric of the Trump campaign. As reported by Greg Sargent of the Washington Post on July 9, a Brookings Institution analysis of China’s retaliation strategy noted that more than two-thirds of the congressional districts affected by China’s countermeasures supported Trump in the 2016 presidential election.
While China’s actions may seem a rational reaction to hit Trump where is seemingly hurts politically, the Chinese may not understand from a cultural perspective just how reactionary, nonsensical and chaotic the Trump strategy actually is. Because Trump’s “strategy” is based on viscera rather than rational calculation, the carefully calibrated Chinese response may have little effect except to encourage further countermeasures.
Indeed, on July 11, Trump announced his intention to increase tariffs on China by another $200 billion, targeted especially to consumer goods, and on Friday he said in a television interview that he’s prepared to put tariffs on every import from China.
As one side of the vise closes on American farmers in the form of reduced demand for U.S. exports, the other, supply side of the vise, less fully reported, is also closing in. This is the fear of immigrant groups employed in U.S. agriculture. This effect will undoubtedly depress the availability and increase the cost of farm labor.
The Wisconsin Agriculturalist, in an article in February, noted the increasing and now almost total reliance of Wisconsin dairy farms on hired nonfamily labor. The University of Wisconsin Program on Agricultural Technology noted that a combination of Upper Midwest trends had created a profound need for these workers. These trends include dairy herd size increases to capture economies of scale, family members seeking employment off-farm to supplement dairying income, and smaller family sizes, meaning fewer hands to do the milking.
One farmer quoted in the story said, “The way I see it, if we didn’t have Hispanics to rely on for a workforce, I don’t believe I could continue farming.”
Contrary to the prejudice and vitriol directed against these migrants, most of whom face grueling work conditions and long hours, the Wisconsin Agriculturalist noted: “Immigrant workers and their families bring their skills and ambitions into Wisconsin, breathing new life into the state’s rural communities. Hired workers, regardless of origin, boost the strength of the state’s dairy industry and also enable dairy farmers to take vacations and have some time off during the day to attend their children’s sporting events or other community activities.”
Although Wisconsin is the popular icon of America’s Dairyland, the No. 1 dairy state for some years has been California. California is also the source of many of the nation’s fruits, vegetables and nuts, such as almonds and pistachios.
In a February CNBC report, the impact of punitive immigration policies under ICE described the “chilling, damaging effect” of ICE immigrant audits on California agriculture, based on interviews with a group of 10 agribusiness employers in the San Joaquin Valley. Trump had recently attacked California’s sanctuary status for immigrants and the “protection of these horrible criminals,” setting the ICE audits in motion.
The inevitable consequence of these actions will be to raise the costs to agribusiness throughout the state, as legal immigrants from Mexico and elsewhere stay home, leaving mainly desperate asylum-seekers to knock on America’s closing door.
Taken together, the demand-side pressure on agricultural prices as exports fall in the face of Chinese and other retaliatory tariffs from Canada and the E.U., combined with supply-side impacts of rising labor costs due to fears of ICE, put American agriculture in a price/cost squeeze. They also have broader implications for the American economy.
Tariffs imposed on intermediate goods coming to U.S. markets from former trading partners like Canada, Mexico and China will raise the costs of industrial and manufactured products, ramping up the domestic costs of construction and production for durable goods like U.S.-made household appliances.
In the end, the overall impacts of Trump’s “easy” view of trade wars will be an effective long-term tax undermining American agricultural and industrial competitiveness. A tax by any other name is still a tax.
Carlisle Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. The views expressed are solely his own.