A trio of ag economists from the University of Illinois have disputed President Donald Trump’s trade claims using USDA’s own data.
Drs. Kathy Baylis and Jonathan Coppess, along with graduate student Steve Burak, pointed to the ongoing North American Free Trade Agreement (NAFTA) talks and Trump’s claims that American farmers have been mistreated by close trade partners as a need for “further examination of the facts.”
“The outlook for trade has darkened considerably in recent days; a gamble in the trade arena that holds substantial risk for American farmers,” the report began, in reference to the steel and aluminum tariffs implemented against Mexico, Canada, and the European Union on June 1.
“Adding confusion to the concern, President Trump claimed that U.S. farmers haven’t been doing well for the last 15 years, and suggested that Canada, China, and Mexico have been treating U.S. farmers unfairly with ‘big trade barriers.’”
The trio claim the data does not support either assertion.
They examined import and export data from USDA’s Foreign Agricultural Service beginning in 1990, before the implementation of NAFTA. Once converted to reflect 2017 dollars, agricultural exports to Canada and Mexico rose steadily from 1990. Agricultural imports from those countries also rose steadily from that point, generally keeping pace with exports.
In the case of China, the data show that U.S. ag exports rose meteorically beginning around 1999 without a comparable increase in ag imports from China. The growth in U.S. ag exports peaked in 2013 with U.S. exports to China being well over five times that of imports from China by value. In the most recent year surveyed (2017), the value of U.S. ag exports to China were roughly 4 times that of ag imports from China, at about $20 billion to $5 billion.
“The above figures make it clear that NAFTA and the loosening of Chinese trade restrictions have led to dramatic growth in U.S. agricultural exports,” the economists said.
“In addition, where there are trade deficits with our NAFTA partners on agricultural products, they are relatively small, particularly in comparison to total trade volume.”
Deficits and dollars
The economists acknowledged the trade deficit between the U.S. and its NAFTA partners in recent years. They also acknowledged that trade barriers can create or widen trade gaps.
“However, these deficits are not the result of increased, or ‘big trade barriers,’” they said of the recent ag trade deficits with Canada and Mexico that began around 2013. “There are trade barriers to U.S. agricultural exports to Canada in terms of dairy, eggs, and poultry, but those are not new and have been around before NAFTA. The U.S. also continues to implement import barriers of their own, most notably, for sugar.
Instead, they assert, the increasing relative value of the dollar is more to blame for the deficits with Canada and Mexico. As the value of the dollar increased, U.S. goods were more expensive making U.S. exports less attractive to our trade partners. Similarly, when the dollar is strong, that makes exporting to the U.S. more attractive, meaning the U.S. gets more imports. The researchers found an “almost perfect negative correlation” between currency exchange rates and the balance of trade between the U.S. and its NAFTA partners.
China, because of its policy of currency manipulation, was not included in the exchange rate discussion.
“The trade data make it clear that over the past 15 years, the value of U.S. agricultural exports has expanded dramatically with our three largest agricultural trading partners: China, Canada, and Mexico,” the trio wrote.
“Where trade deficits for agricultural products occur with Canada and Mexico, they are small relative to the total value of agricultural trade, can largely be attributed to the rise in the value of the U.S. dollar, and the drop in the price of some of our key exports.”
Troubling tariff precedent
In addition to the data analysis, the trio of economists voiced concern over why Trump issued the metal tariffs in the first place: “a claim of impairment to our national security.”
They called this behavior unprecedented, noting that there have only been 26 such claims of imports threatening national security made since 1962, and that only three of those were deemed accurate in the subsequent investigations. The economists warned that such a move might set “a precedent for other countries to make a ‘national security’ claim to protect their industries.”
“The real threat to agricultural exports now comes from rising trade tensions with all three of these countries who are our largest agricultural markets,” the three wrote in their concluding thoughts.
“In particular, the imposition of steel and aluminum tariffs, and potentially tariffs on automobiles, in the name of the rarely-used ‘national security’ clause, opens the door to a potentially large number of retaliatory tariffs, hurting our export-dependent industries such as U.S. agriculture.” — WLJ
“The real threat to agricultural exports now comes from rising trade tensions with all three of these countries who are our largest agricultural markets.”
