Like A Rock Tossed in a Pond
Steve Dittmer | AFF Sentinel
Colorado Springs, CO
Originally sent to subscribers 07/21/24
The musings that have been reported about Donald Trump’s current approach to trade, coupled with Sen. J. D. Vance’s stated opposition to free trade and the USMCA have brought more attention to the subject lately.
It is an important subject to the beef industry because over relatively recent times, the percentage of our production exported to other countries -- both in North America and overseas -- has gone from less than five percent to over 15 percent. The boost to the value of fed cattle carcasses has climbed to the $500/fed head neighborhood, which would have been unimaginable a decade ago.
We have benefited greatly from the trade negotiations in President Trump’s first term. His administration’s finalizing of the near phase-out of Japan’s 40 percent tariffs, capping efforts of over 40 years, was a major achievement. Enhancing agreements with South Korea, which now jostles with Japan for number one destination, were very important and somewhat unexpected, given the Korean consumer’s opposition to American beef not many years ago.
The industry talked about the potential of China’s market for many years. Trump and USTR Robert Lighthizer, helped in there by our industry’s Gregg Doud, actually got it done.
For our industry, those achievements in Japan and China were akin in foreign affairs to the old saying that no one could come up with a Middle East peace treaty. The Trump administration got some countries signed up for a treaty but the current administration not only didn’t follow up, they went far backward quickly.
The point is, even if no new major trade agreements are negotiated for a while, we’re in much better shape than eight years ago.
Nevertheless, the talk of protectionism and trade restrictions is serious business for the rest of the economy and our future market access.
The interlocking of free trade is difficult for some, because they do not follow up the entire set of transactions and reactions that happen in international trade. When America exports goods or services, we get revenue from new sales in new markets. Remember, governments negotiate market access. Private companies market and deliver products and services.
Tariffs placed on goods and services our businesses want to re-sell or components they use in manufacturing, restrict the flow and raise the cost of manufacturing that product. That raises the price and/or restricts the availability of the product to American businesses or consumers. It is, in effect, a tax on U.S. companies and consumers.
But the interactions don’t stop there. A government can retaliate over tariffs imposed on its companies, restricting the flow or increasing the final price of goods to consumers in its markets. Those repercussions can disrupt the market for the tariffed goods or they can affect other goods, spreading the pain to multiple industries.
So then the original gain from sales in a new market is at least partially negated by retaliatory tariffs or restrictions.
The justification for tariffs in the first place is usually said to be protecting American companies, workers and their jobs. But the retaliation for tariffs has to be figured into the equation and other industries may become collateral damage.
Tariffs -- or the threat of tariffs -- can be an effective negotiating tool but they should be relatively temporary, so as to not cause long-term damage or disruption.
Part of the allure of free trade has to do with supply cost, some of it has to do with availability of wants and needs of consumers and some has to do with diversifying supply. We import some things we can’t get or grow here, like bananas, coconuts, chocolate (cacao beans) or coffee beans. Some trade has to do with items that other countries have the raw materials to produce or the expertise and trained workers to produce. Some has to do with competitive advantages some countries have with labor supply or labor costs.
Bourke Cochran championed free trade in the early 20th century, pointing out companies and workers all over the world were every day laboring to produce things that trade made available to a nation’s consumers, giving them the best selection and the most competitive prices the world could offer.
Of course, it’s not quite that simple. Wars, pandemics and national security concerns complicate things. The pandemic illustrated the difficulties of supply lines stretching across the world we had only thought about in terms of cost before, not availability. America’s concern with China, whose labor supply and manufacturing expertise had made them the world’s factory floor, became top of mind when military concerns, competitive issues with government-subsidized companies and possible supply cutoffs became more evident and feared.
Protectionism has been “out” for a long time, as communication, transportation, worldwide demand and closer relations with many nations had fueled free trade. But the concerns outlined above have put a damper on free trade enthusiasm from both political parties.
Then there is the normal human resistance to change. If consumer demand changes or disappears and consumers no longer wish to buy some product or service, that affects companies and their workers. Those companies and their workers can noisily complain to government that they do not want their companies or workers to have to change or adjust. That is where protectionism begins.
The question is, what is more important? The desires of a few hundred or a few thousand workers forced to make changes or the wants and needs of millions or hundreds of millions of American consumers?
In the beef industry, our contention has been that our consumers are the ones who should make those long-term decisions, because they are the source of every dollar that comes into the beef production chain. Absent national security issues, that same principle should apply to every other product and service in a free market economy. The only other factor is the protection of intellectual property, which China is a perfect example of abuse in many areas.
However, there is some research available which examines whether protectionism to save jobs and companies really works.
Next time: Does protectionism work or create more problems?
Our address: Agribusiness Freedom Foundation, P.O. Box 88179, Colorado Springs, CO. 80908.
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