Ruminations on trade and trade wars — Part 2
July 11, 2018
Part One of this essay discussed how laissez-faire free trade treaties caused a ballooning trade deficit; failed to protect industries strategic to the interests of our nation; undermined our sovereignty and the Constitution; and ignored equivalency in its reciprocal trading terms. Part Two explores the Value Added Tax which results in higher property and sales taxes for all Americans; and how the trade regimes eliminated competitive markets for major agricultural crops.
There is an aspect of the laissez-faire trade treaties that is almost totally ignored but effects everyday Americans directly — the Value Added Tax. A VAT is a national level sales tax that most countries in the world rely upon for funding their investments in infrastructure, education, and healthcare. The global average is about seventeen percent (17%). The United States is the only notable country in the world to not have a VAT. We, instead pay for infrastructure and public education through locally imposed sales and property taxes. Health care, for those fortunate enough to have health insurance, comes mostly from one's employer.
The problem is that under the trade agreements, the VAT is refunded to the manufacturer for everything they export and imposed on all imports. For instance, a car that costs $25,000 in a foreign country of manufacture will have a net cost of 17% less ($20,750) on the US market. On the other hand, a $25000 car manufactured in the US will sell for $29,250 when exported to this same country.
Infrastructure, education, and health care must still be paid for, and if a US brand name global corporation has outsourced its manufacturing to foreign shores, that company is no longer contributing to the tax base of the US community it has abandoned. The people left behind are still on the hook, paying higher property and sales taxes for the maintenance of the infrastructure and the costs of public education. And since the "new American economy" often does not include health insurance, people struggle to pay their own health care costs.
Agriculture and the Promise of Exports
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For the last half century, agricultural policy has been premised that if a farmer tilled more acres, used larger equipment, and employed the latest bio-technology, that this "efficient" farmer would prosper because of export demand. This policy worked as planned, the number of farmers since 1980 has decreased by two-thirds. Yet the surviving so-called "efficient" farmers of today find themselves perhaps even more vulnerable than farmers ever were. More land, more machinery, and astronomical operating costs translates to untenable debt.
Bigger farms of course also mean fewer farmers, and as a result the communities where farmers live and where their children attend school, are now hollowed out repositories for some of the poorest people in the nation. Rural America no longer resembles a picture by Norman Rockwell and is instead a widely disbursed slum. Too many living in Rural America are in a perpetual economic depression and anything that threatens to disrupt agricultural exports makes conditions even worse.
Unlike corn and soybeans, this country does not raise enough cattle to meet the domestic demand. As a result of the trade agreements we get high levels of beef and live cattle imports which in turn depresses domestic cattle prices. Agriculture, therefore, is not united in its opinion of laissez faire free trade. Cattle producer's experiences with NAFTA, and the WTO are revelatory of the issues at stake.
For cow/calf producers and independent feedlot operators, NAFTA has been nothing but a disaster. Upon signing that trade agreement, all of Canada's and Mexico's cattle instantly became "captive supplies" controlled by the three major packers. A source of feeder and fat cattle that was invisible to the domestic market, making US cattle prices much easier to manipulate. To counter the negative effects of imports, American producers convinced Congress to pass COOL. The hope was that consumers would elect to purchased US produced product. In retaliation, the packers enlisted the governments of Canada and Mexico to use the "Investor-State Dispute Settlement" provisions imbedded in NAFTA to declare COOL discriminatory to the trading interests of Canada and Mexico.
The cattle industry also found out that International trade trumps animal health considerations. Because of NAFTA, we imported BSE (Bovine Spongiform Encephalophagy) from Canada and continue to import tuberculosis from Mexico. Our trade treaties with South America puts us at a high risk of importing Foot and Mouth Disease. An outbreak of FMD will devastate livestock production for decades. The trade agreements saddle livestock producers with the risks from imported diseases, while the global corporations rake in the rewards.
What American agriculturalists did not consider in their embrace of the imperative to "get bigger or get out of agriculture" and in the promise of lucrative export markets, is that as a consequence the competitive market for what they grew would evaporate out from under them. The "market" for all of the major commodities can no longer be called actual "markets." None of these crops are sold subject to true "supply and demand' in a transparent competitive market place.
Any segment of agriculture that is dependent upon exports to absorb its excess production is vulnerable to changes in demand, foreign wars, environmental disasters, and policy decisions by our own government. The Farm Bill does not even try to protect agriculture from price shocks caused by disruption in export demand. Nor do the makers of farm policy apparently care if farmers and ranchers have fair and transparent markets.
As a consequence, farmers and ranchers are no longer independent producers, selling into a free market. Instead we are serfs, contractually and financially dependent upon a handful of interlocking vertically integrated global monopolies. So, obviously, there is more to the rural economic crisis than just whether China buys American soybeans and corn. Those of us who grow food are pawns in the high stakes game of who benefits from laissez faire free trade and who loses. These are serious issues that go beyond the solvency of our farms, because the future of our country and the survival of our constitutional government is also at stake.
Lobbying by global agri-business and the farm groups that represent them target farmers and ranchers to pressure the Trump Administration to back off on the declared trade war. It hard to say what has been the effect of this lobbying, since the Administration is happily flip flopping back and forth again on the stated goal of leveling the trade playing field. Farmers and ranchers may have no influence over the market for our products but if we still have some lingering political influence, we need to stand up to the global agri-business corporations. For the sake of all Americans, the international trade regimes need reform. In the process we need a united front if we are to restore competitive markets, regain our independence, and rebuild our communities.
Laissez faire free trade and international trade are two different things. Trade between countries should be equivalent. If another country needs to import things that we produce and if we need to buy things that they produce, then trade in natural. The terms imposed should be equal. Safety standards, respect for labor, and mitigation of the side effects on the environment should be strong and equivalent. The rights of the citizens of all countries to govern themselves, should be protected. International trade, just like commerce everywhere should bring together willing buyers with willing sellers. Properly structured trade agreements benefit everyone.
Recent news on the NAFTA re-negotiation talks are disturbing. There are indications that our negotiators will settle far short of the desperately needed NAFTA reforms. The "Investor-State Dispute Settlement" provisions, which were employed to outlaw COOL, may not be eliminated as promised. A problem with the Trump Administration's approach to trade reform is that we, the public, are not privy to the bottom line. There is nothing written that explains the ultimate goal. This has been the problem all along with all of the trade negotiations – it has not been a democratic process. We the people have been systematically kept in the dark with no avenue to express our opinions or desires. The result is a trade regime that has eclipsed the Constitution. America deserve transparency because it is time to take our country back. F