By Rick Manning
Over the past three decades, prior to President Donald Trump’s election in 2016, U.S. manufacturing and production, and agriculture, has been outsourced to foreign trade partners. There are many factors that have fueled this shift towards globalization: trade agreements and legislation including NAFTA and permanent normal trade relations with China, U.S. capital investment overseas in emerging markets, cheap foreign labor, currency devaluation and dumping by foreign trade partners and so forth.
But one often overlooked element has been subsidies.
In the case of China, yes, Beijing has had very high tariffs on U.S. goods. Yes, China used child and forced slave labor. Yes, China manipulates its currency, the yuan, devaluing it to lower the costs of its exports and engage in dumping. But, China also massively subsidizes industrial production and manufacturing in its state-owned-and-run communist system — further putting U.S. producers at a competitive disadvantage globally.
To address Chinese tariff and non-tariff trade barriers, President Donald Trump got China to agree to a phase one trade deal even though there’s still a 25 percent tariff on $250 billion of goods and another 7.5 percent on the remaining $300 billion of goods being levied, and even as the trade in goods deficit with China collapsed by more than 17.6 percent in 2019, or $73.9 billion.
The Trump-levied tariffs help offset the currency manipulation, tariffs and subsidies that China uses—creating a more fair and reciprocal trade deals. In addition, since 2017, the Commerce Department has initiated numerous antidumping and countervailing duties cases against China.
According to a Capital Trade Incorporated assessment submitted to the U.S.-China Economic and Security Review Congressional Commission in 2009, China uses subsidies for absolute control industries in “armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, civil aviation, and shipping” as “being strategic and of vital importance to the proper function of China’s safety and economic well-being,” and for heavyweight industries in “machinery, automobiles, information technology, construction, and iron & steel and non-ferrous metals” as of importance to the domestic economy.
According to the assessment, “Tax subsidies, preferential loans, and grants are the most common form of subsidy. The government also provides favorable input prices and transfers assets to favored firms at prices that are below market value.”
And the subsidies most certainly hurt U.S. manufacturers: “By their very nature, subsidies are distortive. Strategic subsidies, which seem geared to accelerate China’s economic development, have competitive effects because they reduce the costs of the favored Chinese firms relative to firms in the United States and other countries. In competitive international markets, such subsidies would be expected to increase economic activity of favored industries in China relative to activity in the United States. This means higher levels of Chinese output and exports and lower levels of U.S. output and exports.”
Similarly, trade subsidies hurt other American industries, including agriculture. In 2017, the Trump administration Commerce Department successfully negotiated a settlement between the U.S. and Mexico, and Mexican sugar producers to “prevent dumping of Mexican sugar and corrects for subsidies the Mexican sugar industry receives… address[ing] the concerns of the U.S. sugar industry and prevents harm to other U.S. industries, including confectioners, beverage producers, and corn growers, that might have resulted if no agreement were reached.”
What both cases show is that the only way to shore up U.S. producers when foreign countries subsidize their goods, whether manufacturing or agriculture, is with offsetting duties — or a reciprocal trade agreement where both sides agree to lower their subsidies.
That is why the U.S. Trade Representative should negotiate through the World Trade Organization a zero for zero reciprocal agreement to end global agriculture subsidies and eliminate dumping into U.S. markets with an initial focus on sugar.
In addition, there is zero for zero legislation in Congress that would require the President to certify that when countries that exported more than 200,000 metric tons of sugar in 2016, 2017, or 2018 and any other country we have a free trade agreement have eliminated their subsidies, to then propose legislation to eliminate ours.
This would give President Trump additional leverage to work his art of the deal and put forth a plan to end U.S. subsidies as soon as he certifies that foreign competitors have ended theirs. This fair and reciprocal approach fits squarely in the President’s America first trade agenda, and will ensure that global agriculture markets can finally become freer and more importantly — fairer by putting U.S. farmers interests first.
Rick Manning is the President of Americans for Limited Government.
