As President Donald Trump’s trade war wages on, we decided to check in on the most affected sectors.
U.S. Agriculture Department Secretary Sonny Perdue said farmers, who will receive $12 billion in aid, were particularly affected by the dispute.
"America’s hard-working agricultural producers have been treated unfairly by China’s illegal trading practices and have taken a disproportionate hit when it comes to illegal retaliatory tariffs," Perdue said in a USDA press release on July 26.
We’ll leave aside the question of whether the retaliatory tariffs are any more illegal than the initial U.S. tariffs on imports. But we were interested in the second half of his claim: Have agricultural producers taken a disproportionate hit?
The Agriculture Department pointed out that 37 percent of U.S. exports facing retaliatory tariffs are agricultural exports. Those are the tariffs as of July 31, 2018 coming from China, the European Union, India, Turkey, Mexico and Canada.
That’s disproportionate to the total goods the United State exports: about 10 percent are agricultural goods, according to the USDA’s 2017 data.
It’s hard to measure the exact numbers, though. That’s because tariffs are listed individually by the governments that issue them (in this case, not the United States), and because the United States doesn’t keep close tabs on exports. USDA calculated the 37 percent figure using official import customs data from the retaliating partner through a private third party, Global Trade Atlas.
"Export data is notoriously bad," Laura Baughman, president of the Trade Partnership, told us in July. "It’s inaccurate because people don’t necessarily report it very carefully, since you are not assessing tariffs on exports."
However, the agricultural industry is on average much more dependent on world markets than other industries, according to David Laborde, a senior research fellow at the International Food Policy Research Institute.
Exports comprise 10 percent of total GDP in the United States, whereas they comprise about 20 percent of GDP in the American agricultural sector. That fraction is even higher for crops like cotton (76 percent is exported), soybeans (50 percent) and wheat (46 percent), according to USDA.
About 16 to 17 percent of exports to China are agricultural goods, so any conflict with China (like the ongoing one) takes a heavy toll on agriculture, Laborde said. He calculated that 86.8 percent of agricultural exports to China are impacted by retaliatory tariffs while 36.9 percent of the non-agricultural exports are covered.
Farmers face two additional aggravators: their products are easily replaceable and they’re an easy political target.
One ton of U.S. soybeans is a nearly perfect substitute to one ton of Brazilian soybeans, Laborde pointed out. But high-tech medical equipment (another type of products exported to China) is difficult to substitute, so Chinese consumers are more willing to endure the tariff.
And from a political economy point of view, Laborde said it made sense for China to maintain pressure on farmers in particular, as a core constituency for the Trump administration.
Perdue said, "America’s hard-working agricultural producers … have taken a disproportionate hit when it comes to illegal retaliatory tariffs."
It’s difficult to measure the impact of tariffs on the economy and particularly hard to measure the impact of retaliatory tariffs on exports. That said, the economy sets up agricultural producers to bear the brunt of tariffs. Exports are doubly important for the agricultural sector’s GDP as for the country’s GDP. USDA calculated that 37 percent of exports facing tariffs are agricultural goods, whereas agricultural goods comprise 10 percent of total exports.
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