If you believe President Trump -- a dangerous act in its own right -- the United States has long allowed itself to be “ripped off” and played for a fool in bad trade deals negotiated by tougher, smarter competitors.
“The United States has been taken advantage of by other countries, both friendly and not so friendly, for many, many decades,” as he repeated in a press conference with the prime minister of Sweden. “We have a trade deficit of $800 billion a year, and that’s not going to happen with me. We have been mistreated by many.”
This is a rare “core belief” for Trump, a constant theme of his public pronouncements going back to the 1980s. And unless you believe that somewhere along the line he conducted an in-depth study of international trade law, he did not come to this position based on data or analysis. It is instead a function of his personality and attitude, which holds that in any relationship there are two types of people: those who cheat, and those who get cheated.
Trump is defined by a grim determination to always be the first type, not the second, and it’s that psychological quirk that is now playing out in national trade policy.
The truth is that on trade policy, the United States is by no means the babe in the woods that Trump describes. We do have lower tariffs than many countries, but most economists believe that we have prospered immensely from that approach. Our problem is that unlike other countries, we have not acted to ensure that the benefits of that greater prosperity are broadly shared or that the income inequality it produces is mitigated fairly.
Furthermore, a recent study of world trade conducted by Credit Suisse concluded that in terms of non-tariff trade distortions -- export subsidies, tax subsidies such as those proposed for Amazon, etc. -- the United States is the most aggressively protective market in the world.
One of the prime beneficiaries of that approach has been agriculture. For example, the United States is the third largest cotton exporter in the world, in large part because cotton is heavily subsidized by taxpayers to the tune of more than $1 billion in 2016 alone.1
American peanut farmers also benefit significantly from tariff and non-tariff trade protections. If you want to import peanuts into the U.S. market, you have to pay an effective tariff of 132 percent, which makes it extremely difficult for other peanut-growing countries to compete here.
Those subsidies mean that cotton and peanuts will be prime targets for countries seeking to retaliate against the United States for the steel and aluminum tariffs proposed by Trump. In fact, if you look at the list of commodities already targeted by the European Union for higher retaliatory tariffs, what do you find alongside Harley-Davidson motorcycles and bourbon? Peanut butter.
So try to imagine a state that grows almost half of the nation’s peanuts, that also ranks second in the nation in cotton production. Imagine a state where the rural economy is already in trouble, a state where cotton and peanuts alone account for $1.65 billion in annual sales.
If you know a state like that, you also know a state that may pay a heavy price for trying to save a few hundred jobs in steel and aluminum in Pennsylvania and Ohio.
1Three of the top 10 recipients of cotton subsidies are located right here in Georgia, receiving an average subsidy of $877,000 in 2016.