Commentary from 4th generation farmer: Trade wars are economic self-mutilation
Agriculture is now a global market, affecting our plans on what and how much we plant in acres each season. Agriculture will be the casualty in a trade war. Farmers are naturally optimistic; the weather will be better tomorrow when it rains and the sun is shining. Farmers think that because we are the world's largest agricultural exporter that countries will have to come to us. History says otherwise!
The tariffs on steel and aluminum will greatly affect Dakota farmers, especially corn and soybean farmers. The majority of the grain raised in North and South Dakota is railed west to terminals at the Port of Klama, near Portland, Ore., onto cargo ships via the Columbia River out to the Pacific Ocean and onward to Asian countries. In this region, the grain is trucked to the closest terminal. Starting mid-March through April, our local elevator ships a 100-car train every single day to the west coast. That's how dependent this region and my farm are on grain exports.
Tariffs will cause increases in the price of machinery (steel and aluminum), vehicles and appliances. Protecting those industries which will never survive without tariffs on foreign countries' steel and aluminum is not a product of policy, but plant overcapacity in places like China. Simply, they have cheaper labor and raw product. U.S. steel will never be able to compete with that. Buying from China sustains our standard of living. We can buy from Asian countries cheaper than making products ourselves, which creates a trading deficit. The good thing is that agriculture creates a trading surplus for the United States.
China is the No. 1 customer of soybeans in the world, buying over 60 percent. Our sales to them have dropped 20 percent from last year alone. China doesn't have to buy from the U.S. Brazil and Argentina will gladly fill in any gap. With the right incentive, they can bring on an extra 8 million acres into crop production in a short period of time (rain-forest and grassland).
Do you believe that a country that is upset at the U.S. for tariffs being levied against them will be shopping in the U.S?
Mexico, our No. 2 market, is already seeking out other markets for buying corn. Granted there are problems with technology piracy and currency manipulation, etc., with China, and there are also problems with Canada and Mexico, like cheap labor. We used to complain about Japan and our balance of trade with them.
Remember China is the No. 1 destination for U.S. agricultural commodities with room to grow in their livestock sector. China has 75 times more farmers but less than half of the arable land than the U.S. The average farm size there is just two acres. The U.S. has 50.1 percent of the world exports in corn and 50.5 percent in soybeans, with Brazil closing in on first place for soybeans.
The U.S.-Korea Trade Agreement was enacted six years ago. We removed two-thirds of the tariffs on U.S. farm and food exports to South Korea. In the three years preceding this deal, exports to South Korea averaged $5.4 billion. In the last three years that average has increased
18 percent to $6.4 billion. Our imports also increased by 68 percent to $486 million annually. South Korea was the sixth biggest customer of U.S. agricultural products in 2016.
Trade wars are economic self-mutilation. We will hurt ourselves even more by creating demand destruction due to tariffs. Does anyone remember the embargoes and boycotts of the 1970s and that it hurt grain sales for years? Protectionism also was blamed for the depression of the 1930s.
Tariffs were enacted in 1930, and U.S. exports dropping by 61 percent by 1933. The tariffs were repealed in 1934. In those times, the Gross Domestic Product was just a few percentage points compared to the imports and exports equaling 30 percent of the United States GDP today. History does repeat itself, so are we doomed to repeat the same mistakes again?