Things aren’t going so well for agriculture right now. USDA funds for contracts and grants remain frozen. Five hundred million dollars for a program to increase local sustainable food systems was eliminated, leaving many farmers in the lurch. DOGE is busy cancelling office leases for the Farm Service Administration and the Natural Resources Conservation Service. As offices close, farmers will have to drive further to get the support they need. Reductions in force at Health and Human Services will hit rural communities hardest as they already have the least resilient healthcare systems.
The economic impact is significant. And then came April 2nd.
Trump’s announcement of new tariffs on every country in the world wasn’t good news for anyone, especially farmers and ranchers, and the rural communities they support. (If you missed it, I explained how tariffs work and why they hit agriculture the hardest in this post.)
I’m sure you’ve heard and read a lot about these impacts, but maybe, like me, you’re a little confused about what all this means. Fortunately, I have several friends who are economists, so I asked them to explain the situation we find ourselves in. They agreed that this explanation from Tim Salmon, a professor of Economics at Southern Methodist University is very good. So here you are:
In light of yesterday’s developments, I felt a bit compelled to post a much too long FB post on tariffs. There is a great deal of misunderstanding about how these work and what they will do flying around. Trump tells us that his tariffs will do 2 things. First, they will raise $6 trillion paid for by other countries. Second, they will revitalize American manufacturing and generate new high paying jobs and wealth for our country. All awesome things if they happened. At a minimum, though, it is mathematically impossible for both to come true. If we raise $6 trillion from the tariffs it is because we continue to buy from foreign countries rather than from US manufacturers. So no manufacturing revolution. If the manufacturing revolution occurs, then we aren’t buying from other countries and no $6 trillion emerges. So at most one of those things happens, but which one?
Could the manufacturing boom happen and would it generate jobs? No and no. There is an important misunderstanding here (ok, several) which is that we don’t manufacture in the US anymore. Domestic manufacturing is at record highs. So why are jobs in manufacturing down? It’s because it is done by robots, not people these days. Manufacturing jobs weren’t stolen by factories in Mexico. They were stolen by robots. This has been known for a long time by everyone except politicians trying to sell you on bad policy and “feel good” sound bites. If we increased manufacturing in the US, it would not create a ton of jobs for humans. We would be making our robots work more. As to whether we will create much more manufacturing, consider what you have to think about if you were a company planning new manufacturing in the US right now. First, you have to build a factory. Problem: all the components to build that factory are now tariffed so building that factory will be much more expensive than it was last year when it was already not worth building. Also, all your production inputs are tariffed. Your products will be super expensive. Second problem: who would work in it? Were you to build a factory dependent on labor, there aren’t workers. We are near full employment and we are kicking all immigrants out and shutting off new ones. This is one of the reasons you would have to rely on robots.
What about your ability to sell? Well, exporting is completely out. Other countries will block that and you will be too expensive anyway. Domestically, everyone will already be paying a lot more for things and so they will be buying less and you will be super expensive. By the time your factory is up and running, odds are good we are in full recession. It might be easier to get employees because of that, but no customers. So any manufacturing boom will only employ robots and it’s unlikely to happen anyway. Plus, we were already booming!
So what about that $6 trillion paid for by others? This is complicated. Everyone knows that it is the importer, i.e. us, who pays the tariff directly. So how could Trump claim other countries would pay it? There actually is a way for that to happen. Take Canadian steel as an example. If it gets tariffed and we have good substitutes like Japanese or Chinese steel, then we don’t have to buy the expensive Canadian steel and can buy elsewhere. Canadian steel companies then have pressure to price reduce so that they are less expensive unless they can find other customers. This means they shoulder the main burden of the tariff. We still pay more for less, but Canada takes some of the burden by setting lower prices. The key to that was the availability of less expensive substitutes. Trump set tariffs on everyone. We have no alternatives. We will take almost all of the surplus loss from these tariffs. We will pay a lot more and get a lot less. You might then think “well, just buy American steel!” There isn’t enough. We don’t produce all the types of steel needed or the quantity and even if we did, American companies would be jacking their prices up due to the demand increase and the fact that their competition is eased. We will still pay a lot more for a lot less and we will not generate new jobs for Americans either in the short or long run.
There is no coherent argument in favor of tariffs implemented this way. If you are thinking, “hey, give the guy a chance, how do you know?” Well, there is all of the clear economic theory leading to the arguments above. There is also a ton of historical evidence showing that all of that theory checks out. This is not a new policy design. It is one that people think up all the time. We know how it works. None of this is new. None of this is novel. None of it has been designed in an intelligent or purposive way. It’s just as dumb as taking ivermectin as a covid treatment. Well, actually dumber still than that as there’s a chance ivermectin doesn’t harm you (not a great one, please don’t take that junk unless you are a horse with worms!). And I’m not going into the dumbness of how they actually arrived at these tariff numbers as their “process” simply boggles the mind at its stupidity (you should check it out so that you understand why he is tariffing stuff produced by penguins).
Why does Trump want to do it? I’m not a psychologist. I can’t say. It does fit in with his general policy agenda which is simply getting revenge on everyone he thinks has wronged him. This includes all the law firms he is shaking down for money because someone he doesn’t like used to work for the firm, the universities he is shaking down, the States he is shaking down and this is him doing it to other countries. This is policy agenda as designed by someone who only understands mafia style protection rackets. If you disagree and can mount a coherent explanation for why this tariff policy could achieve the claimed goals, great! Let me know. The administration has so far mounted no such argument and I don’t see one as possible, but I would be happy to see some argument for why it will work.
That aside, if you have questions along the lines of “well, why is it fair that other countries have tariffs against us and so this is just returning fairness”, that’s a reasonable question as trade policy is complicated but that is another monstrously long post. Happy to discuss it with you if you want the full explanation (short version, total barriers to trade are complicated and not fully captured just by tariff numbers. The US through a ton of US controlled international trade organizations have been pushing all of these to near 0 for decades setting all international trade standards in our favor. It’s part of why other countries somewhat justifiably hate us and among the reasons we used USAID for decades to pay them off in pennies for what we took back in hundreds and thousands of dollars.)
BTW, nothing in what I wrote above has anything to do with politics or any political party. It’s just straight math. In fact, what I wrote above was understood by Republicans for many decades prior to Trump. Democrats only started to embrace this view while Clinton was president, but there have been a lot of holdouts in that party. Prior to Trump, Republicans argued this side, and Democrats, except for Clinton and Obama, argued for tariffs. It’s a topsy-turvy world, but none of my points are constructed based on or intended to support the ideology of either party. It’s just math. Math doesn’t care about parties and neither do I.
We really need to start requiring some semblance of competence in the policy domain as this policy, if it remains for long and the trade war escalates, may be as destructive to world economies as the financial collapse of 2007. This time, the economic devastation is completely and easily preventable. Republicans, please rein in this guy. No one else can. The world needs your help.
Now, what can we do? I don’t know about you, but I’m calling my representatives to tell them that tariffs hurt agriculture and all of us.
