WASHINGTON — With all of the uncertainty around the Trump administration’s end point on trade, the grains-oilseeds-livestock (G.O.L.) sector of U.S. agriculture finds its trade interests between a rock and a hard place. The rock is the simple fact that much of its output must find customers abroad. That rock is not going away, as much of future demand growth prospects are even more dependent on trade.
The hard place is that U.S. G.O.L. interests can get overridden by broader foreign policy or national security interests. History teaches that lesson painfully. Fifty years ago, the United States agreed to the European Common Market’s Common Agricultural Policy as an acceptable price for a more unified Europe. The U.S. G.O.L. sector lost its then best market over a few short years.
Nor can many forget the 1980 Soviet grain embargo, which cost U.S. farmers 13 million tons of sales that year while ushering in a prolonged farm recession and widespread doubts about U.S. supply reliability. Other countries also frequently regard their G.O.L. sectors as vital to their political stability or security, keeping import restraints in place. The Japanese rice market has long been such an example.
In recent months this “hard place” has taken on new aspects. Three stand out. The first is President Trump’s efforts to deliver on his campaign promise of narrowing bilateral trade deficits, particularly with China. The second centers on a national security rationale for imposing import duties on steel and aluminum now and possibly to protect other industries deemed vital to U.S. national security down the road.
The third aspect is a more generalized concern over whether the rules-based trading system still serves U.S. interests. Doubts here have led to renegotiation of the North American Free Trade Agreement (NAFTA), which jeopardizes U.S. agriculture’s second and third largest markets. The Section 301 complaint challenging Chinese trade and intellectual property practices has triggered a threatened 25% import duty on U.S. soybeans. China’s “Road and Belt” and “Made in China 2025” programs offer additional points of trade friction over the coming years because of potential inconsistencies with established trade rules.
From a strictly economic perspective, such trade skirmishes usually end up leaving both sides worse off. From an economic perspective alone such issues are best resolved through outward-looking agreements and best enforced through rule-of-law practices.
When national security or foreign policy considerations come into play, however, economic sense can get pushed aside. Issues like stabilizing the Korean peninsula or confronting a China that seems to be becoming more aggressive and authoritarian are truly “hard places” to overcome through economic logic alone, although it is still very important to try.
There is, however, another way in which agriculture’s trade interests interact with broader foreign policy or security concerns. A stable world is an important pre-condition for sustained, broad-based economic growth. It is such economic development, and the rising personal incomes that accompany it, that can become the engine driving food-demand growth.
As poor people gain better incomes, their diets shift toward greater consumption of fats and oils, meat, milk and eggs. Time and again, these rising dietary expectations outpace the capacity of those countries’ farming systems to keep up. It is this rising prosperity abroad that causes countries to turn to the U.S. G.O.L. sector for help in meeting their improving dietary expectations.
At the same time, it is important for policymakers to recognize that such long-term gains are simply the sum of short-term decisions. Or as one trade theorist put it, trade reform is like riding a bicycle: once you stop moving forward, you fall down. It is this risk of discontinuity in the general post-World War II movement toward global integration that has raised the most serious concerns. Tearing up trade agreements, threatening trade wars and creating uncertainty about future policy directions have alarmed not just the commercial trading community but also much of the foreign policy and national security communities as well.
It is not entirely clear how the United States is going to get back up on its trade reform bicycle and resume moving forward. A strategy that insists on narrowing bilateral trade imbalances leads to more managed trade, not trade reform. Allowing national security or foreign policy concerns to override trade agreements leads inevitably to instability and uncertainty. Only by bringing trade disputes back within established rules and norms can these risks be put to bed.
The coming weeks could shed more light on which of these directions will prevail. A focus on bilateral trade imbalances will mean more — not less — governmental management of trade flows. Unilateral approaches to resolving national security or foreign policy concerns both undermines the multilateral trading system and the likelihood of collaboration with allies in such areas as concern about Chinese intellectual property and trade practices. And failure in the NAFTA negotiations will add yet another exception to the rules-based approach to trade reform.
These are difficult times for U.S. agricultural interests caught between their rock and their hard place. No single act, decision or concession puts trade back on smooth cycling forward. But any of the three outcomes listed in the previous paragraph will make trade more hazardous and trade reform less likely.