Trump is Putting Farmers in a Long Term Funk
So far as I remember, all Presidents of the United State through history have managed to understand world trade. Maybe some came into office campaigning to raise tariffs to "protect American jobs" but they came to realize this was not a sustainable idea and began to promote lower tariffs and more international trade.
That was until Trump came along. He has been unable to understand the mechanics of world trade. He makes mistake after mistake and the general public is slowly recognizing the harmful ramifications.
In 1776 Adam Smith published the Wealth of Nations. The reason this book, written by an absent minded professor who stumbled about, has remained the bedrock of economic thinking is that the logical ideas it contained have never been buried by the sands of time.
His book was controversial at the time because the topic of economics mostly had been addressed by clergy. The clergy talked of the unjust treatment of the poor, the evil of greed and the righteousness of the tithe.
Smith talked about the goodness of more productivity. His example was when the carpenter stopped making his own nails and buying them from the nail factory. When one group only made nails and another other did carpentry that used the nails the incomes of both went up because more barns and houses were built. When there was more specialization there was more exchange and everyone was better off.
The same principle, that specialization increases the standard of living, applies to world trade. Each country is better at growing or making some things than other countries. When several countries specialize and trade the standard of living in all increases.
Because of new tariffs, the price of U. S. grain to the Chinese has gone up. The price of Chinese goods in the U. S. has gone up as well.
Farmers need to settle in for a long period of pointless low prices.
I've wondered what percentage of income farmers lost in the trade war will be replaces by the government subsidy. An Associated Press story today quote a farmer as saying the subsidy will replace only 1/3 to 1/2 of the lost income.
ReplyDeleteJon, do you believe/know that farmers are both hard-working but heavily subsidized by the government, i.e. akin to welfare? I'm not stating my position. You're the economics guy and it must have come up in your time at NDSU. I do know there are lots of farm subsidy programs including CRP.
ReplyDeleteMatt "Jon, do you believe/know farmers are....heavily subsidized by the government..it must have come up in your time at NDSU. I do know there are lots of farm subsidy programs including CRP."
DeleteI not only know about government subsidies of agriculture, my wife and I receive them indirectly from farm land she owns. I managed my parent's farm for several years and received these payments, many different kinds and too complicated to go into.
I don't happen to think these programs are good for our country and their effect is to artificially raise the price of land. How did these subsidies come about? We are seeing a replay at this very moment. Trump's tariffs were put in place for his political ends. They have reduced, or will reduce, farm income. He is increasing the subsidies to agriculture to offset his political maneuver. Before long, Trump will be gone and the tariff idea will be dropped. But, farm politics being always successful, we will find the subsidy Trump championed remains in place. This will further increase the price of land helping wealthy established farmland owners like my wife and I and hurting smaller and younger farmers.