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Agriculture Is A Common Bargaining Chip in Trade Negotiations

From the 1980 grain embargo to President Trump's tariffs today, agriculture has had a front row view.

President Donald Trump isn’t the first U.S. president to use the agriculture industry as a bargaining tool. In 1980, President Jimmy Carter stopped trade completely with the Soviet Union. For a short period of time, President Richard Nixon placed an embargo on U.S. soybeans and President Ronald Reagan’s tariffs on Japan were similar to those Trump has recently imposed.

“There’s no question these things do have a long-term impact,” says Joseph Glauber, senior research fellow at the International Food Policy Research Institute and former chief economist of the USDA. “In terms of agriculture being used to negotiate with other countries, there are high level instances where presidents have used agriculture dating back to the Nixon administration.”

President Nixon

In the early 70s, inflation rates were dramatically increasing, causing the price of food and other household expenses to rise. In 1973, the price of soybeans leaped from just under $3 to nearly $13 per bushel. Nixon responded by placing an embargo on soybeans to retain them in the U.S., keeping soybean meal prices from going through the roof.

“The embargo wasn’t so much against other countries as it was a response to considerable price hikes other countries were placing on exports for certain products,” says Glauber. “However, there was still a significant number of U.S. farmers that were very unhappy.”

At the time, Japan was the number one market for U.S. soybeans and farmers were getting a good price for their crops. The embargo reduced the amount of soybeans farmers were able to sell, hurting them financially. Secretary of Agriculture Earl Butz called Nixon’s actions a very serious mistake.

In response to Nixon’s embargo, Japan met with Brazil to encourage the country to boost soybean production. Japan wanted to diversify its sources of soybean imports by importing as little as possible from the U.S.

“The embargo was short lived and only hurt farmers for a brief period, but these types of things can have an impact in the long run,” says Glauber. “These things have consequences and we take actions against it.”

Trade was shortly reopened, but Nixon’s decision continues to affect farmers today with Japan making considerable investments in Brazil’s soybean industry. Brazil successfully increased their production from five million tons in 1973 to 15 million tons by 1983 to nearly 96 million tons by 2016.

Similarly, with its proposed tariffs on $3 billion worth of U.S. imports on soybeans and pork in response to Trump’s tariffs on aluminum and steel, China has imported more soybeans from Brazil who has harvested a record crop this year. China is also set to grow soybean production by 4.9% this year with a 20.7 million acre increase in soybeans.

“China is a very restrained country on how they respond to tariffs,” says Ian Sheldon, Ohio State University Anderson’s Chair of Agricultural Marketing, Trade, and Policy. “China is targeting products they can substitute to inflict economic political costs, but it’s a lot harder for them to find substitutes for soybeans.”

According to Reuters, China is reducing soybean imports for the first time in 15 years. The country is also exploring other resources by expanding their production of ethanol to boost corn consumption. This push will enable China to produce more DDGS, which can be used in the animal feed market.

President Carter

A mere seven years later, farmers were hit yet again when Carter, a farmer himself, enacted a much more crippling embargo on corn, soybeans, and wheat.

In response to the Soviet Union’s invasion of Afghanistan in 1979, Carter initiated a grain embargo on the Soviet Union that lasted over a year.

“Much like President Trump’s tariffs and their effect on the agriculture industry, farmers were the ones that had to pay the price,” says Glauber. “Since there was a substantial amount of wheat in the world in 1980, the Soviets were able to import from other countries.”

With little effect on the Soviet Union, the embargo caused the price of U.S. corn to drop from $3.11 ($10.52 in 2018) per bushel in 1980 to $2.32 ($6.91 in 2018) per bushel in 1982 according to the USDA NASS.

“Farmers lobbied extensively for the 1981 farm bill,” says Glauber. “Farmers wanted to have some type of compensation when there’s a grain embargo. Congress did pass a few things to help producers, but when the embargo went in place there were substantial price declines.”

The 1980 election was the turning point for the embargo as Republican nominee Ronald Reagan promised to end the ban, while President Carter did not want to do so. With most Midwest farmers angry at Carter, Reagan made a clean sweep of the Corn Belt states and won the election.

President Reagan

Farmers were hopeful Reagan would keep his promise in ending the embargo and he did so on April 24, 1981. Reagan continued to be favored by U.S. farmers by signing the most expensive farm bill at the time at $52 million.

Reagan designed the bill for farming to become more market oriented and less tied to the hands of government. The same year, Reagan imposed tariffs of 100% on Japanese products, including color televisions, computers, and hand power tools.

Although Reagan’s tariffs were successful and didn’t have a large effect on U.S. agricultural exports, both Reagan’s and Trump’s tariffs are similar in defending and demanding fair trade agreements with foreign allies.

President Trump

When Trump proposed the 25% tariff on steel imports and a 10% tariff on aluminum imports in March, China retaliated, particularly targeting American soybeans whose producers count on China for more than half of their sales. China’s 25% tariffs on agricultural goods, including U.S. soybeans, beef, pork, and 100 other products, will not take effect until after May 11 and could take up to 180 days for a final decision with negotiations by the Trump administration.

“There’s no doubt a lot of people are very nervous about this much like they were in the 1970s and again in 1980,” says Glauber. “If you were to talk to any older farmer, most of them would remember the Soviet Union grain embargo very well and its effects on the farm crisis in the 80s.”

Sheldon says the Trump administration is pushing hard on the current trade deals but needs to think through the effects on other parts of the economy.

“It’s going to put a lot of pressure on farm incomes,” says Sheldon. “Farming is already under pressure with low grain prices and the instability for farmers to maintain a sufficient income.”

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