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MIKE ESPY — Ag tariffs: We should be careful what we ask for

MIKE ESPY

Military wars are dangerous, expensive, and as we have seen in the decades old conflict in Afghanistan- can be quite lengthy, but in the end America will win.

However, when the conflict concerns international trade, the same cannot be said, because in trade wars the outcome cannot be confidently predicted.

As a unified nation, the force of our military, more powerful than any nation since the dawn of history, protects us. But in a trade war, our economy, while the world’s largest, is vulnerable to attack from precision targeting by our global adversaries. At war we stand as one. However, in trade, we can get picked apart.

On April 3rd, the White House announced a plan to impose tariffs of 25% against 1,300 products that we import from China, which is on top of the previously announced tariffs on imported steel and aluminum that were announced in March. Some say that these actions were intended to protect a single industry located in the important electoral states of Ohio and Pennsylvania. Whatever the Administration’s motivation, or however laudable its justification, it has opened the door to retaliation and China has selectively chosen retaliatory targets- one of which is Mississippi agriculture.

Thus, as we watched this dramatic skirmish unfold, we saw China just one day later, on April 4th; announce higher tariffs covering some 106 American product categories. Tit for tat, escalating ever higher into more dangerous zones.

As The Economist reports: “the list China published on April 4th is even bolder. It makes no effort to comply with the World Trade Organization rules, and aims at pressure points in America’s democracy, including industries with powerful lobbies, such as aircraft and agriculture.”

The list of agricultural products proposed for higher duties include: yellow soybeans, black soybeans, corn, cotton, sorghum, durum wheat, beef, pork, and frozen orange juice and whiskies. China has selectively listed for target some $50 billion of US products annually, principal among which are Mississippi soybeans.

Agriculture is Mississippi’s number one industry, and soybeans represent Mississippi’s number three agricultural crop. In 2017, 3,274 Mississippi farms produced 115,010,000 bushels of soybeans contributing to our state’s economy a whopping $1.11 billion dollars. Mississippi’s 824 cotton farmers produced 1,400,000 bales representing a market value of $562 million dollars. And in pork, 306 Mississippi farm families produced 570,000 hogs and pigs at a market value of $117 million dollars.

Unable to stop the trains from crashing, Mississippi farmers watch in dread as these two global behemoths get into position, knowing that if a 25% tariff is imposed against soybeans alone, Mississippi’s farmers and rural communities will be devastated. We have seen soybean futures already take a hit- dropping nearly 40 cents a bushel the morning after China’s announcement. Futures reports indicate that on the projected 2018 of 4.3 billion bushels, U.S farmers lost $1.72 billion in value for their crop.

Escalated trade tensions pain me deeply because as United States Secretary of Agriculture in 1993 and 1994, I traveled across the globe huddling around large round tables, where my team and I negotiated the multilateral trade treaties of NAFTA and GATT-which firmly established the rules regarding tariffs and other trade measures. On behalf of our nation, we negotiated fair rules of trade so that unfettered free trade in agricultural commodities could ensue. But now, things have changed.

The Administration is quoted as saying that if China harms our American farmers that it will “take care of the farmers”. OK. But there is really only one way that this can be done- and if so, this approach would be considered as being contrary to conservative governing principles.

If China retaliates against American agriculture by imposing a 25% tariff, these profitable American and Mississippi soybeans will not be sold into China- our largest soybean market by far at 12.4 billion dollars. Instead, China will likely buy soybeans from Brazil, and our American soybeans, as futures markets predict, will drop in price, and the incomes of Mississippi farmers will suffer their beans remain unsold on the global market.

In its arsenal of alternatives, the Administration could authorize the purchase of soybeans through mass purchase by the USDA Commodity Credit Corporation (CCC). The CCC is literally a USDA multi-billion dollar bank where capital is annually replenished by the US Treasury Department, pursuant to authority of the Congress. Congress automatically replaces whatever the CCC spends in one year in the next year. As former Secretary of the United States Department of Agriculture I served as Chairman of the CCC. I know what leveraging power lies in this governmental authority- to raise farm prices by purchasing market-clearing amounts of agricultural commodities.

But I ask. Why would we force American taxpayers to buy surplus commodities when we already have a market? Isn’t deficit spending supposed to be contrary to conservatism? And here specifically, through these CCC purchases, don’t we offer ironic benefit- again to China, our trade adversary?

Imagine what would likely happen in this trade war: 1. China imposes a 25% tariff on Mississippi soybeans; 2. Brazilian soybeans that now cost less on the world market are more widely sold in China; 3. Mississippi soybeans that are harvested now sit unsold in grain bins and elevators- and as prices fall due to grain surpluses’, farmer’s incomes will continue to fall; 4. Rushing to lift farm incomes the federal government rushes in with the CCC checkbook, and purchases market-clearing amounts of Mississippi soybeans, but these CCC purchases are paid for by the sale of U.S. Treasury notes which China purchases; and therefore 5. China, which already holds a trillion dollars of U.S. debt, literally 19% of our 6.2 trillion debt, is now able to use the interest we are obligated to pay on this debt to buy more soybeans from Brazil, helping China and Brazil to continue to undercut our soybean markets.

Does this make any reasonable sense?

As your next United States Senator, I will use my knowledge and substantial experience in Congress and as USDA Secretary to hammer out solutions with our trading partners, which sells our agricultural products, protects our budgets, and helps to control our deficit spending.

I will not gamble away the livelihoods of Mississippi and American farmers. Because now even if the tariffs never go into play, the damage has already been done. As further harm, China also now has cause to question our reliability as a supplier.

I will work with Democrats, Republicans and the White House to move us away from the cliff of retaliatory tariffs that harms the fortunes of Mississippi farmers. I believe in the important principles of free trade and believe that when trade is fair, American farmers will win. On a level playing field, we will always win.

Much like our military, American agriculture is the most powerful economic engine in the world. We have the equipment, the technology, and the knowledge to produce world-class farms. Our yields are second to none, but to be profitable good yields need customers around the world, including China. We should not jeopardize those markets by engaging in a dubious trade war.

We have no time to play tit for tat games. We have too much work to do.

» MIKE ESPY is the former Secretary of the United States Department of Agriculture, and a former U.S. Representative from the 2nd District of Mississippi. He currently works as a private sector attorney, counselor, and agricultural advisor, having his own law and consulting firms: Mike Espy, PLLC, and AE Agritrade, Inc. He is also running for the U.S. Senate seat in Mississippi vacated by Republican Thad Cochran.

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