“Trade wars are easy to win”! Think again, Mr. Trump

“Trade wars are good, and easy to win!”, Mr Trump had exclaimed. About a year after such an exclamation, there are hundreds of farmers, Trump’s traditional voter base, gathered around in Washington, to pressure policy makers and the Trump administration to end the trade war by describing the hardships they are facing.

Farm incomes in the US is at a 15 year low, farm bankruptcies are on the rise, exports have dwindled, and farmer suicides are increasing. In November, a Federal Reserve Bank of Minneapolis analysis revealed that 84 farms filed for Chapter 12 bankruptcy in 5 US states in the last year. In the meantime America’s agriculture department expects farm incomes to drop by 13% this year. The ratio of farm debt to assets is forecast to rise to its highest level since 2009. The Financial Times reported that the net cash income in 2018 dropped to the lowest level since the global financial crisis, with the average farm business earning less than $70,000.

A number of reasons can be explain this farm crisis, rising interest rates, a glut of commodities leading to a price crash, rising operational cost and a struggling dairy sector, but the trade war is perhaps the most important proximate cause. Tariffs are adding an additional barrier and throttling the industry that is already facing some deep structural flaws. The Economist reports:

“More than a fifth of agricultural exports face new tariffs. From January to September pork exports to Mexico and China fell by 31% and 36%, respectively. Sales of soyabeans, America’s biggest farm export, to China have plunged by 98% since January”

Soyabean exports were worth $12 billion dollars before the trade war. Now, China, which is also concerned about food security, has been diversifying its import sources. Brazil has been the winner in all of this, as China has looked to the South American country for its Soy needs. With Canada and Mexico also levying retaliatory tariffs on American agricultural products, the US has lost out on its big export markets.

In between all of this, the long government shutdown made things worse. The soy farmers are heavily dependent on farm subsidies given by the government. However, with the shutdown, the release of these funds have been delayed.

The ongoing ceasefire has at least not worsened the trade war between US and China, but they are still far from an agreement on a new trade deal. The deadline for the end of the ceasefire is 1st March and despite Trump’s claims, he is not winning this trade war. As economics predicts, everyone loses in a trade war.