March 10, 2018
The selective free traders (people who support protectionism that benefits high-income people, but oppose it when it can help ordinary workers) are pulling out all the stops in going after Trump’s steel tariffs. Today, the NYT takes the show to rural America where it tells us how much agriculture can be hurt by a trade war.
We meet various farmers worried about the threat of a trade war and get a few random facts thrown in:
“Three out of every five rows of soybeans planted in the United States find their way out of the country; half of those, valued at $14 billion in 2016, go to China alone.”
“Two weeks after the administration imposed a tariff on solar panels, China opened an anti-dumping investigation into American exports of sorghum, a grain used in livestock feed. The United States was virtually China’s sole foreign source of sorghum last year, with $1 billion in sales.”
There are a few points worth making here. First, if our trading partners do impose barriers to US exports of agricultural goods, then we would see the price of these products fall somewhat in the domestic market. That is bad news for these farmers, but good news for the rest of us who will have lower priced food. The NYT apparently only thinks of consumers when it comes to tariffs raising prices.
The second point is that while the loss of a large market can have a substantial impact on the price of a relatively small volume crop like sorghum since it is a relatively small volume crop the number of farmers affected will be relatively few. Furthermore, most will be able to switch to crops that offer a better return.
Finally, it is worth noting that changes in the dollar’s value have much larger impacts on the fate of agriculture. There is essentially a world price for products like wheat, corn, and soybeans. If the dollar rises in value by 10 percent against the currencies of our trading partners, then the price of these goods in dollar terms will fall by roughly 10 percent. (Yes, it is somewhat more complicated, but this is a reasonable first approximation.)
The high dollar policy pursued by the Clinton administration when Robert Rubin and Larry Summers were Treasury secretaries had a far more devastating impact on US agriculture than anything that could plausibly come from the new trade war. For example, wheat prices fell by approximately one third from their mid-1990s level. I could be mistaken, but I don’t recall The New York Times and other news outlets highlighting the devastation the high dollar policy was imposing on the country’s farmers.
The piece also likely misled readers on the impact of steel tariffs imposed by the Bush administration. It told readers:
“In 2002, President George W. Bush imposed tariffs and quotas on steel, which cost the economy millions of dollars and job losses, according to a report the next year by the United States International Trade Commission (USITC).”
The linked study actually concluded:
“[…]the effect of the safeguard measures on the U.S. welfare ranged from a welfare gain of $65.6 million to a welfare loss of $110.0 million, with a central estimate of a welfare loss of $41.6 million.”
In other words, the study did not rule out the possibility that the tariffs provided a net benefit to the United States, even though its central estimate implied a loss of $41.6 million or 0.0004 percent of GDP. By comparison, if we could get the pay of doctors in the United States in line with the pay they receive in other wealthy countries, we could save more than $90 billion a year, close to 0.5 percent of GDP. The saving from eliminating patent and related protections on prescription drugs would likely be more than $370 billion a year or 1.9 percent of GDP. (Yes, these are discussed in my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
It is also worth noting in reference to the steel tariffs that the industry was going through a period of restructuring at the time. The tariffs provided the industry with some breathing room that allowed for bankrupt companies to be reorganized rather than liquidated. It would be difficult to determine how many jobs were saved as a result of having this temporary respite from international competition, but if the figure is in the range of 10,000 jobs, the USITC central estimate would imply a cost of $4,000 per job saved. That would be a pretty good deal.
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