Rural America has backed Republicans for decades, but it gave unusually strong support to Donald Trump’s 2016 candidacy, with Iowa scoring the biggest D-to-R shift of any state in the union. It’s interesting, then, that one of the segments of the business community with the biggest concern about Trump’s policies is agribusiness. This sector enjoys traditional Republican priorities like lax environmental regulation and eliminating the estate tax, but could suffer enormously from trade wars that Trump might initiate.
One clear sign of that is a letter sent this week from a wide range of farm sector stakeholders, ranging from the North American Meat Institute to the American Soybean Association to the US Dry Bean Council urging Trump not to blow up NAFTA.
Beyond the specifics of NAFTA, the objective economic interests of rural America are systematically opposed to those of Trump’s beloved Rust Belt manufacturing workers. The farm sector is a large net exporter that depends heavily on foreign trade to sustain income and employment. It will inevitably bear the brunt of any retaliatory measures imposed by foreign countries on the United States. The result is that Trump’s policy agenda is on a collision course with one of the bulwarks of his political support.
America’s farmers love trade deals
The letter, though politely phrased, is unambiguous, arguing that the “increased market access under NAFTA has been a windfall for U.S. farmers, ranchers and food processors.”
It also makes the point that trade in general is central to economic opportunity in rural America because “with the productivity of U.S. agriculture growing faster than domestic demand, the U.S. food and agriculture industry — and the rural communities that depend on it — relies heavily on export markets to sustain prices and revenues.” Or in case that wasn’t clear: “growing exports have increasingly become a vital share and important source of value to U.S. production.”
Agribusiness had really been hoping the United States would ratify the Trans-Pacific Partnership, which, according to the Farm Bureau, would have increased net farm income by $4.4 billion annually.
The soybean industry is particularly worried about Trump’s policies, with American Soybean Association president Ron Moore issuing a statement condemning TPP withdrawal and noting that “we export more than half the soy we grow here in the United States, and still more in the form of meat and other products that are produced with our meal and oil.” Indeed, when the Peterson Institute for International Economics models the possible impact of trade war scenarios with China, it sees the soybean sector as bearing some of the most severe negative consequences since China could retaliate by curbing soybean imports.
Protecting manufacturing will hurt farmers
These past couple of years have been pretty good for the overall American economy, which has continued to add jobs and see wages begin to rise as the unemployment rate begins to drop. But things haven’t been as good in two sectors where Trump enjoyed strong support: farming and manufacturing.
American farm income has plummeted over the past two years because global commodity prices have fallen, largely due to slower growth in China.
At the same time, after rebounding nicely from the recession, manufacturing jobs leveled off and then started vanishing over the past couple of years — largely due to the high price of the US dollar.
Trump’s problem is going to be that it’s hard to come up with a trade policy that helps both sectors.
The American agricultural and manufacturing sectors could, of course, enjoy a stroke of good luck. Maybe economic growth in India and Europe will accelerate, driving commodity prices up and the value of the dollar down, boosting both sectors.
But in terms of things the Trump administration can do with trade policy, he is going to find that he faces a fairly sharp trade-off. The United States is a large net exporter of agricultural goods. Moves to shelter American manufacturing companies from foreign competition will lead to retaliation that will fall heavily on the farm sector. And if “winning” at trade ends up sharply slowing economic growth in developing countries, that will also fall heavily on the farm sector.
So far, the dissonance between the agriculture sector’s enthusiasm for trade deals and rural America’s enthusiasm for Trump hasn’t really struck. But as the president moves from speech giving to policymaking, a collision seems inevitable.