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Commentary: The Cost of Free Trade

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After taking a real public whipping during the 2016 election, trade is slowly crawling back to the surface as an economic tool that has benefits for the U.S. economy. Even President Trump, who a year ago vowed to tear up NAFTA and back out of TPP, is now “renegotiating” NAFTA and quietly talking trade with many of our former TPP partners.

During the campaign, Trump’s tough rhetoric on China had many in agriculture fearing a trade war. So it is ironic that the first agricultural trade breakthrough should involve U.S. beef exports to China. Vice President Pence has been to Japan to talk trade, and low-level discussions on trade with South Korea are also happening under the media radar.  While many in agriculture are encouraged by these developments, there is a dark side to this trade talk.

Most farmers support free and fair trade. History has shown that the farm economy wins big when we trade with other nations, and data shows a direct correlation between the amount of goods we import and the level of farm goods we export. In 1998, the U.S. imported $37 billion in farm products and exported $52 billion. Over the next two decades, those numbers grew to $111 billion in imports and $150 in exports.  This was the era of NAFTA, CAFTA, and a host of other multinational trade agreements.  Yet, in our eagerness to foster a policy of free trade, let’s be mindful of what might come along with it.

“In order to make a credible case for further liberalization, we must lead by example and cut our own agricultural subsides,” says Trade Policy Analyst Clark Packard with R Street, a nonprofit, nonpartisan public policy research organization whose mission is to promote free markets and limited, effective government. They are among a growing number of conservative groups in Washington that are advocating for drastic reductions in farm programs, including crop insurance.  “As Congress begins piecing together the next farm bill, it is important for legislators to understand that overly generous domestic agricultural subsidies hamper our ability to expand foreign trade in agricultural products,” stated Packard.

In other words, they want farmers, who already take on more risk than about any other business, to take on more risk with no tools to manage that risk.  Somehow, by throwing American producers naked into the global marketplace, it is going to shame the EU, Canada, Brazil, Japan, China, and others into dropping their tariffs and internal supports for their farmers.  This kind of bilge is getting a lot of attention on Capitol Hill, and many of these groups have considerable influence in the Trump White House.

There are some aspects of U.S. farm policy that are vestiges of the past and need to be addressed, but crop insurance is not one of them. To call this public/private program “an overly generous agricultural subsidy” is demeaning and totally inaccurate. These quacksalver trade experts are ignorant of how crop insurance is used and of the role it plays in a farming operation.

This should serve as a warning, however, of the fight we have ahead of us. With big budget cuts coming, the battle to maintain adequate funding for crop insurance will be key.  Strong farmer involvement will be needed to demonstrate the truth about the importance and necessity of a sound and affordable crop insurance program. Farmers need and deserve a trade policy that enables them to participate fairly in the world market,  but not at the cost of giving up their safety net.

By Gary Truitt