The Trump/Biden War on Agriculture

American populism has been on the rise, perhaps most clearly seen in 2016 with the popularity of Bernie Sanders and future President Trump in their respective campaigns, and with it has come a fight against many ideas that have been considered consensus within the field of economics for decades. Populists from both major parties have shifted emphasis from the notion that consumerism drives the economy, and have often stressed the importance of protecting the American worker and putting “America First” once again. The primary tool for achieving this has been through protectionist trade policies, in an attempt to deter companies from outsourcing jobs, and instead use American labor. The Trump administration employed many tariffs on various capital and consumer goods, most of which the Biden administration has enthusiastically continued, boasting a “Buy America” agenda. Unfortunately, while perhaps well-intentioned, this is simply another act of government favoritism in the market, and I will explain how such policies may temporarily help certain industries, but will in turn break down others. 

It’s understandable that individuals, especially those who are in communities where many (or even most) people are in industries that have been largely outsourced over the last few decades, are wary of free trade. They see it as an attack on their way of life, as there is no way an American worker would take a salary as low as that of a Chinese worker. Thus the argument often goes along the lines of, if the government were to place a tariff on the sale of foreign goods sold in America, that would deter companies from shipping their jobs overseas, and would then continue to employ/bring back American jobs. There are many implications to this that are ignored. 

To demonstrate these implications ,I will start by setting up a plausible, hypothetical scenario. We have a large car manufacturer named Liberty Motors that has maintained most of their production in Japan for the last few years. They’ve been making negligible profits, as selling cars in America is a competitive industry in its nature. Now let’s say the United States government places general tariffs at a modest rate. This makes Liberty Motors rethink some of their operating decisions, as the cost of producing overseas has increased. Liberty Motors now makes the decision to close down all their factories in Japan, and open up shop in the United States, so they won’t be bogged down by tariffs that increase business costs. Until now, all has gone according to plan, in the eyes of a protectionist that seeks to bring back American jobs. But, the story does not end here. The departure of Liberty Motors means that there is now one less large taxpaying corporation in Japan. Seemingly unrelatedly, Japan is one of the largest purchasers of American agricultural products. In wake of this forgone tax revenue from Liberty Motors leaving (and likely other companies also going through similar processes), Japan will now be able to purchase less American agricultural products from the United States. This leads to anguish on export-oriented industries, like agriculture. 

We can see this clearly following the Trump administration’s tariffs. They were often touted as relief for American jobs, particularly in the manufacturing industry. What the administration may not have expected, was the unintended consequences laid upon American agriculture. Agricultural firms and households were furious, and soon enough Trump gave out an enormous $22 billion subsidy to various sects of the agricultural industry in order to make up for lost revenues. These firms make large investments based on expected future profits, and when expected profits take a hit as a result of unforeseen circumstances, this jeopardizes the investments made. This often leads to large scale liquidation and layoffs, thus hurting American workers, the group we originally meant to help. Though I only address tariffs in this argument, let it be known that any policy deterring outsourcing that decreases the foreign nation’s revenue (be it a tariff, company-specific outsourcing tax, sanction, etc), will simply shift the burden of suffering from an industry like manufacturing, to an export industry like agriculture.

And regardless, even if we ignore these large losses absorbed by export-oriented industries, only a very high amount of tariffs would really be able to get companies like Liberty Motors, especially in industries like manufacturing, to bring labor back to the United States. In countries like China, wages paid to factory workers are basically under a dollar. Whereas every jurisdiction in the United States has varying minimum wages that are often decently high. Even if the minimum wage did not exist, workers would not work for under a dollar, since that is far from sustainable when considering cost of living in the United States. To raise the cost of foreign production enough to strongarm companies to bring back jobs, America would need tariffs so high, that America would be no different from India pre-1990s, with some tariff rates going as high as 300%. I will not spend time explaining India’s lack of innovation during those years so as to not go astray from the topic at hand, if you are looking for further information on the topic, I recommend checking out Dr. Shruti Rajagopalan’s 1991 Project, explaining the effects of the removal of high tariffs in India. In addition, here are some readings of the very many detrimental effects of tariffs on consumers, which is often the most common argument, hence why I did not address it.

Furthermore, this was all working within the assumption that all tariffs will (at least to some extent) deter companies from moving abroad. This is not true. Former presidents George W. Bush and Donald Trump both championed steel tariffs, which have been highly detrimental to the manufacturing industries they were meant to aid. Steel is a key resource in the production of many manufactured goods, like cars. When the price of importing steel increases, this makes it more difficult for American producers to make their goods efficiently. This leads companies to move/stay abroad, and get their steel there only. Many tariffs can, and have exacerbated the number of American jobs lost.

It is indeed disappointing that many American families who have worked in manufacturing for years, have been saying their lifestyles be forced away from them. Many of these workers are left jobless, as their skills are that of manufacturing, and it is difficult to transfer skill sets to other industries. For such reasons, I support policies like a Negative Income Tax, which I have detailed in a previous blog post here. This would allow displaced workers to go back to school to acquire skills that are suited for jobs in demand in America, so they can contribute something that is of need in the American economy, while still being able to provide necessities for their families.