Count me among those who think the tariffs China has put on U.S. agricultural exports are only a minor irritant. Compared to the Unaffordable Care Act (UCA) enacted by Democrats in 2010, the tariffs are only chicken feed.
No question, President Trump is using tariffs as a weapon in his foreign policy arsenal, trying to get other nations, including China and Mexico, to act more in the interests of the United States if they want to continue to have access to U.S. markets. The tariffs are not trivial.
Where the president’s trade policies are wanting, are in that he is trying to go it alone. Many of our allies around the globe share our interests that China is behaving badly. To gain access to China’s factories and markets, we have had to put up with Chinese theft of our technology as well as the dumping of goods at below-market prices, while the Chinese government subsidizes its own industries.
Minnesota’s Iron Range suffered for years because of Chinese steel dumping until Trump did something about it. Steel is critical to national defense, and the political class ignored national security far too long.
Many Americans don’t know that tariffs were the primary revenue source for the federal government from its founding until the income tax was enacted in 1913. The theory was that tariffs would protect our fledgling industries from actions similar to what the Chinese have recently used against us.
The widespread use of tariffs, however, declined after Republicans enacted the Smoot-Hawley Tariffs of 1930, sharply curtailing international trade. They turned a short-term stock market crash, from which the nation was already beginning to recover, into a global depression.
Since then, economists have recognized that international trade is in everyone’s interest. Free trade should be the goal because when trade is free, consumers benefit the most. When tariffs are slapped on, businesses either find different suppliers who can provide goods more cheaply than those paying tariffs or consumers end up paying more.
Regardless, a close look at the farm economy explains why farmers have been struggling in recent years. The primary reason is that many farm commodities have been in oversupply, pushing down their prices. Our U.S. farmers continue to become more efficient. In 2016-17, for example, wheat growers produced 52.7 bushels per acre, the first time American farmers had passed the 50-bushel yield threshold. Our wheat farmers passed the 20-bushel threshold in 1956-57, the 30-bushel threshold in 1969-70 and the 40-bushel threshold in 1998-99.
Meanwhile, corn yields averaged 26 bushels per acre from 1866 to 1936, slowly rose to 40-bushels in 1957, and have been steadily increasing approximately 1.9 bushels per year ever since. Average corn yields are now around 175 bushels per acre. One can attribute the increase to scientific advancement and efficiency.
Soybeans have followed a similar path, breaking the 50-bushel per acre average yield threshold in 2016. While some would say farmers are causing their own problem with their efficiency, the drive to grow more per acre is heightened by the lower prices. Soybean prices averaged $14.63 pe bushel in 2012, but now are around $8.87. Meanwhile production costs have remained stubbornly high. In Minnesota, the 9th District Federal Reserve reported in March, the cost for seed, fertilizer, pesticide, fuel and electricity have risen by 50 percent since 2006 — after adjusting for inflation.
As a result, last year, before any tariffs had affected prices, farm income in Minnesota was the lowest in at least 23 years. Down 8 percent from the year before, median farm income was only $26,055. Some farms did well. The top 20 percent had median income of $184,000, but farmers in the lowest 20 percent reported a median loss of $70,000. Taken as a whole, 34 percent of Minnesota farming operations lost money in 2018 and 40 percent lost net worth.
Why? One of the primary reasons rural areas voted for Trump in 2016 was the UCA. Farmers run small independent businesses, and the UCA pummeled them, doubling their health insurance costs or worse. Many farmers are now spending $30,000 to $40,000 on health care and have property tax bills anywhere from $5,000 to $15,000. Those in the top 20 percent can absorb those costs. If a farmer is part of the other 80 percent, health care and taxes are a bigger issue than tariffs, at least so far.
I’ve said before, we can shuffle the deck chairs on the health care Titanic, shifting the rationing of care from the private sector, which has an incentive to hold down costs, to the public sector, which doesn’t. However, until we revolutionize health care by increasing supply to meet demand and deregulate wherever it makes sense, the economics will continue to deteriorate and people will begin to die more frequently from the inability either to afford or to obtain coverage.
Agricultural tariffs only pour salt on the wound opened by Obamacare.
In March, the Federal Reserve reported that farm bankruptcies have increased steeply since 2014 in the 9th District. Futures prices have ticked up a bit since March, but only because the wet weather has reduced crop forecasts. Unfortunately, most Americans live in urban areas and have no idea how dependent they are on the health of the farm economy.
Tom West, now retired, is the former general manager of this paper. Reach him at firstname.lastname@example.org.