Impact of the Trade War on U.S. Agriculture
The US-China trade war has had a major impact on the American economy. Since February 2018, the two largest economic entities in the world have engaged in a tit-for-tat battle of tariff escalations. As a result, the U.S. has imposed tariffs on $550 billion worth of Chinese products, and China has imposed tariffs on $185 billion worth of U.S. goods. Despite several negotiation attempts, a mutually-agreed trade deal has not been achieved.
While President Trump intends to bring jobs back to the U.S. and limit China’s expansion with the trade war, various American economic sectors must swallow the bitter fruits of this strategy. For example, the agricultural sector has experienced the strongest impact at a national and international level. Agricultural exports to China have dramatically decreased, which negatively impacts the U.S. agricultural employment rate. This article aims to examine how the recent trade war has led to the loss of sales revenue for American agriculture sectors, which has raised unemployment and added a burden on the government budget.
Agriculture plays an important role in the well-being of the American economy. In 2017, it provided 11% of U.S. employment and contributed to 5.4% of the GDP in 2017 (USDA). In the same year, the U.S. exported $24 billion worth of agricultural products (soybeans, sorghum, and pork) to China. Due to the trade war, America has lost market presence in China, causing its exports to plummet to $9.2 billion worth of agricultural products in the past year.
China has been the top destination for soybean exportation which is one of the most significant export commodities of U.S. agriculture. During the tensest period of the trade war, “just 14% of total U.S. bean exports went to China in the first half of 2018-19 that began on Sept.1, compared with 65% in the first half of 2017-18” (Bourne). Consequently, the erosion of profit by the trade war caused higher US unemployment in the agricultural sector. This is seen in the agricultural unemployment rate in early 2019 as it reached 11%, meanwhile, the national unemployment rate remains steady and below 4%. At the same time, farm bankruptcy filings have also increased to 13%, which indicates the difficulty experienced by many American farmers.
Responding to the rising dissatisfaction from the agriculture sector, the Trump admission has offered $28 billion of government aid to American farmers who have suffered from the significant loss of income due to the trade war. The aid is driven primarily by political priorities related to the 2020 presidential election. However, the governmental bailout is not necessarily a sustainable solution for the plight of farmers. Especially when the debatably unfair distribution of aid has further rendered the government’s ineffective expenditure.
Moreover, the enlargement of agriculture aid imposes greater pressure on the federal government, whose budget deficit has recently hit $1 trillion after increasing for four years in a row, while the national debt has reached $22 trillion. In the long run, a large budget deficit and national debt can potentially hurt the US economy. Subsequent higher interest costs could crowd out vital public and private investments while leaving the government less flexible when confronting unexpected economic shocks.
Agriculture has been a major focal point of the trade negotiations between the U.S. and China. Currently, the trade war has entered a period of detente, China has agreed to exempt various agricultural commodities from additional tariffs in September and promised to purchase more agricultural products from the U.S. As suggested by President Trump, the Chinese commitment of roughly $50 billion purchase is way higher than China’s historical annual spending on U.S. agriculture products. If such a deal would enact, the inflow of Chinese money would alleviate the stress imposed on the U.S. agriculture sector. However, uncertainty remains high as the “phase one” trade deal only offers a pause to the escalation, and future negotiations would be necessary to resolve the more detailed issues.
In conclusion, the American income of agricultural production heavily depends on exports to China, hence, free trade is indispensable for the prosperity of U.S. agriculture. While government subsidies offer limited comfort to the stress felt by farmers, a stable trade system is an optimum solution desired by many Americans. Nonetheless, neither the U.S. nor China are willing to easily back down in defending their national interests. Thus, the still unclear prospect for a complete trade deal would continue to hinder the overall performance of the global economy.
Author: Ben Yang
Editors: Naomi Santiago, Daryl Chan
