Category Archives: Agricultural trade

17/6/19: Lose-Lose-and-Lose-Some-More Trade War: Trumpism in Action

Recently, I have posted on the latest Fed research covering the impact of the President Trump's trade war with China, showing that the tariffs collected by the U.S. Federal Government are not being paid for by the Chinese producers, but are fully covered out of the American consumers' and firms' pockets.

Here is an interesting note via CFR on the balance of tariffs and farms subsidies dolled out as a compensation for the Trump trade wars:

via @CFR_org

The point is that tariff revenues are a tax on American economy (households and firms), and these tax revenues collected by the U.S. Federal Government are not enough to cover compensation to the U.S. farmers for their losses due to China's retaliatory tariffs. Agrifood commodities are a buyers market: soybeans are sourced globally, traded globally and their prices are set globally. When China imposes tariffs on imports of soybeans from the U.S., the Chinese consumers do not pay the tax on their purchases of these, instead they substitute by purchasing readily available soybeans from other parts of the world. On this, see: Brazilian farmers win, American farmer lose. Uncle Sam subsidises U.S. farmers to compensate, using tax revenues it collected from the American consumers of Chinese goods.

But farming lobby is strong in the U.S. Thus, total quantity of compensation awarded to the farmers in now in excess of total tax revenues collected from the American consumers. It's a lose-lose-and-lose-some-more proposition of economics of trade.