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October 27, 2015

Ag Committee Hearing Properly Draws Attention to Problem of Foreign Subsidies

 
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Trade policy is starting to get interesting.

Trade is back in the policy discussion with the Trans-Pacific Partnership having been concluded and many waiting to see the final text of the agreement. It’s a major agreement, and if it’s ratified by signatory countries, will have a dramatic impact on U.S. trade going forward.

But there are other trade issues as well, including enforcement of existing trade agreements as well as those countries and goods that are not covered under trade agreements.

That was the topic of a hearing held last Wednesday by the House Committee on Agriculture, led by Chairman Michael Conaway (R-TX). The Committee is concerned about foreign agriculture subsidies that distort markets and target American producers.

Now, we’ve written before about this issue with a focus on the sugar markets. On the one ideological side you have people who overtly believe in protectionism in a mistaken pursuit of somehow benefitting American producers by protecting them from foreign competition and thus gifting them with artificially high prices.

On the other ideological side you have those who think that believing in free trade should mean immediately eliminating any policy that affects the flow of goods across our border. If other countries want to subsidize production of some good in order to gain market share in the world’s most lucrative market (the United States), we should let them. Unilateral disarmament, in other words. It matters not that they would put U.S. producers out of business—all that matters is that U.S. consumers would get lower prices, which is a net benefit to the nation.

Which of course, it is. And that’s why any number of trade protections SHOULD be eliminated—because the net result would be lower prices to consumers. Adam Smith was correct.

Here’s the problem: What happens after the U.S. producers are driven out of business and Country X has gained the market share? They raise the prices, and much of the benefit to consumers disappears, while leaving the damage to the U.S. producers. In other words, not much was gained, while leaving a net transfer of wealth to the foreign subsidizing country.

This is the “United States as Pinata” model of free trade, and I’m convinced it’s not the right one. I’m convinced that a better model of free trade is negotiated rules and agreements where countries agree to aggressively compete, yes, but to not engage in some of the more destructive trade policies such as heavy government subsidies and dumping.

So I’m not arguing that today we have achieved the right trade policies, but I don’t think unilateral disarmament is the right path, either. I’m glad to see Chairman Conaway apparently agrees:

“I hope that one day our trade agenda is able to zero out subsidies, tariffs, and other trade barriers around the world, including here at home. But, until that day becomes a reality, we cannot and we will not unilaterally disarm America’s farmers and ranchers.”

I agree, and that’s why hearings such as the one last Wednesday that highlight subsidies and other bad practices by countries like Brazil, China, Mexico are worthwhile to hold. It’s why trade agreements like the Trans-Pacific Partnership are worth pursuing, and it’s why further trade liberalization at the WTO, including a zero-for-zero sugar agreement, are worth pursuing as well.




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