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August 22, 2014

The One-Two Punch Against American Agriculture

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It’s almost as if it is official U.S. policy to make it difficult for American businesses to succeed.

First and most significantly, we subject American businesses to the highest tax rates among all of our competitors—39.1% when you add in state taxes. That’s significantly higher than the O.E.C.D average of 25 percent, and it’s even higher than the supposedly “high tax European countries”—consider that Belgium (34 percent), France (34.4 percent), and Sweden (22 percent) all have lower business taxes than does the United States.

Then, at least for select industries, we aid their overseas competitors. Through the Export-Import Bank we finance foreign purchases of Boeing jets, which helps foreign competitors of Delta, Southwest, American, FedEx and UPS. We could solve that problem this year by simply allowing Ex-Im to expire.

We allow other of our domestic industries to be exposed to blatant market manipulation and outright attack by our trading partners, particularly in agriculture. Yes, American agriculture policy is a rats nest of loans, supports and protections that are hard to justify in a free-market economy, and conservatives recognize these as market distorting. Of course we should move toward phasing out these protections.

American agriculture is the most efficient and productive in the world. If we are the most efficient agricultural producers in the world but still can’t compete without support programs, doesn’t that suggest that something must be seriously wrong—in addition to the absurd taxes and all?

Something is in fact seriously wrong with global agriculture markets. Consider sugar. Yes, the sugar program is the subject of much criticism from free marketers, and I make the same criticism. But a strategy for phasing out these programs should be based on data and understanding of world markets. And when it comes to government supports for sugar, our global competitors are the real market manipulators, making U.S. sugar supports look like amateur hour in comparison.

The four countries (Brazil, Thailand, India and Mexico) that control most of the 58 million tons of sugar exported annually heavily subsidize and otherwise direct their sugar exports to the tune of billions of dollars, dwarfing U.S. supports. Brazil this year has added even more programs that add up to at least $2.5 billion in sugar subsidies. Thailand maintains almost total control over its sugar production and export, and India similarly sets domestic prices and controls imports and exports.

In Mexico’s case, 20 percent of the sugar industry is owned directly by the Mexican government itself. Most recently, Mexico’s dumping of sugar into the U.S. market resulted in a May preliminary finding by the International Trade Commission that Mexican sugar exports are in violation of U.S. trade law.

It’s important to note that our much maligned sugar supports didn’t cost U.S. taxpayer a dime for over a decade until this year, and only then because of the effects of this Mexican dumping.

But if other countries want to dump cheap commodities into U.S. markets, shouldn’t we let them? So what if other countries want to subsidize their sugar exports and provide U.S. consumers with a subsidized sugar high? What’s wrong with that?

The problem is that other countries subsidize their sugar production and export to gain market power, not as a form of foreign aid for U.S. consumers. And once they put U.S. sugar producers out of business, American consumers will find sugar prices skyrocketing, as did European consumers after a 2006 reform, when 83 European sugar mills were closed and 120,000 jobs were lost. Shortly thereafter, the EU became a net sugar importer and prices climbed to the point where European consumers were paying 20 percent more for sugar and shortages were reported.

In other words, it won’t stay cheap.

It’s an imperfect world, something we free-traders must constantly remember. Our principles are the right ones, but our global competitors don’t share them. Unilaterally dropping our sugar supports without global reform of the sugar trading system would result in just another competitive U.S. industry being put out of business by the one-two punch of indefensible taxes at home and foreign dumping from abroad.

The solution is achieving something resembling a reasonably free global sugar market through the World Trade Organization (WTO), and that should be a priority for U.S. agriculture policy. In addition, of course, to cutting business tax rates to make all U.S. industry more globally competitive. Republicans would do better to prioritize across-the-board business tax cuts than unrealistically expecting U.S. agricultural producers to compete in the face of outrageous taxes at home and predatory dumping practices by our competitors.

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