A Trade War Could Be Bad for Farmers and Consumers

It’s an undeniable fact that the United States relies on trade. Our trade deficit last year was over $700 billion. But is this reliance always a disadvantage to our workforce? Yes and no. Despite what many politicians say about trade, it’s a complex issue that can’t be boiled down to an absolute (whether that’s “good” or “bad”). Case in point: agriculture and manufacturing.

Farmers clearly benefit from agricultural trade and specifically from trade with China, and if we limited trade, they would be adversely impacted. For instance, soybeans are the fourth largest net export for the U.S. with over $18 billion last year, and the U.S. is the largest producer of soybeans in the world. In fact, we exported $10.5 billion in soybeans to China in 2015, while only importing $36 million from them. 

Even when we discuss manufacturing, which has undoubtedly been hurt by trade, the story isn’t so simple. Some of the top net imports to the United States are manufactured products such as computers, cellphones, cars and furniture. What if we limited or stopped trade on these items? It would likely be a painful transition for U.S. consumers and businesses. Computers are a great example of this. The Department of Commerce estimated that less than 1 in 4 computers and electronic products purchased in 2012 were domestically made. If we limited trade in this area, it would take years before the U.S. could produce the same number of computers at comparable prices, because there simply isn’t the infrastructure in place to support the current demand. Even though trade has hurt this industry, there would still be problems to overcome if we limited trade. 

U.S. Farmers Benefit from Trade

When most people talk about trade, we typically discuss how much we import from China or how trade deficits adversely affect manufacturing or other jobs. What is discussed less frequently is the industries that are positively affected by trade. One of these industries is agriculture and farming. Looking at the top net exports for 2015, 22% of the top fifty net exports from the U.S. are agricultural products, such as nuts, poultry and sorghum. In the graph below, we show the top ten agricultural net exports as well as their rank among all net exports across all the industries. For example, corn was the second highest net export in agriculture and the sixth highest net export overall.

Top 10 Agricultural Exports by Net Export

Soybeans are the fourth highest net export overall, behind aircraft, low value exports (which are exports typically under $2,500 that do not need to be declared) and refined oil. Last year, the U.S. exported over $18.9 billion in soybeans and only imported $492 million. The next highest net export on the list, corn, had a net export of less than half of soybeans even though it was the sixth largest net export overall. If we combine soybeans and soybean oil-cakes, which were also a top ten agricultural export, the total net export last year was over $22 billion. 

Soybeans are an important crop and are increasingly used in a variety of different food products. Many food products use soy as a replacement for dairy, gluten, meat and nuts. Soybeans can also be pressed for their oil (oil-cakes are a byproduct of the pressing process), and soybean oil is commonly listed as “vegetable oil” in many food products. One of the other major uses for soybeans is as feed for livestock—an estimated 97% of soybeans are used for livestock feed—and this means that soybeans are an important input to meat and poultry products, which are also large exports for the United States.

Soybean Production and Exports Affect Many States

In 2015, the United States was the largest producer of soybeans in the world, producing almost ten times the amount as China. We produced $34 billion in soybeans, which is over 3.9 billion bushels. This is roughly double what we produced only ten years ago. Most of the top soybean producing states are located in the Midwest, with Illinois producing the most in 2015 ($4.9 billion) and Iowa producing the second most ($4.8 billion). Soybeans were only grown in 31 states last year, with the bulk of production occurring in 12 states in the Midwest. 

Top Ten Soybean Producing States in 2015 (by dollar amount)

Given that the net export of soybeans was $18 billion last year, this means that we export a little less than half of all soybeans produced in the U.S. Even though most soybean production takes place in 12 states, more than 38 states export soybeans. The states that exported the most soybeans last year were Louisiana, Washington, Ohio and Illinois, and of the $18 billion we exported, $10.5 billion went to China. Washington does not produce any soybeans, but is the second largest exporter. The high number of soybeans exported through Louisiana and Washington is due to the large ports in each of those states. In 2014, three ports in Louisiana ranked in the top ten by cargo volume, and two ports in Washington ranked in the top 20 by cargo volume for exports. Soybeans are not only an important industry within the states that grow them, but they are also important to the shipping and trade industries within the states that export them and to our trade relationship with China.

Soybean Production and Exports in the United States in 2015 (by state)

Manufacturing's Complicated Relationship with Trade

Of the 1,235 product categories the United States imported and exported, we maintained a trade deficit across 755 products. Of the top ten net imports, crude oil, unsurprisingly, had the highest trade deficit with $117 billion. Aside from oil, a majority of the top ten net imports are manufactured items, such as cars, cell phones and furniture. This too is unsurprising given that many of the top manufacturers in these categories either offshore their production (ex: Apple) or are based outside of the United States (ex: Samsung, Honda).

Top 10 Net Imports in U.S. in 2015 (by dollar amount)

When politicians or policymakers speak of the disadvantages of trade, they are usually referring to these types of products. And it is true that there are far fewer manufacturing jobs today than there were twenty years ago. In 1995, the Bureau of Labor Statistics reported approximately 20 million manufacturing jobs in the United States. By 2015, this number was just over 15 million, which represents a 25% decline. Like many other industries, the manufacturing industry was hard hit by the Great Recession, losing over 1.8 million jobs from 2008 to 2010. Since 2010, the industry has slowly recovered gaining several hundred thousand jobs per year. 

Number of Manufacturing Jobs in U.S. from 2002 to 2015

The manufacturing industry’s recovery has been on par with the overall recovery, even though it has not returned to its pre-recession levels. From 2010 to 2015, the total workforce grew 7%, averaging 1% growth per year. In comparison, the manufacturing industry grew 9% in the same period, averaging 1.3% growth per year. Despite this growth, the Bureau of Labor Statistics (BLS) estimates a -0.7% compound annual rate of growth through 2024, meaning that the industry is unlikely to return to its pre-recession levels. Even today, the industry is a half million jobs below its level in 2008. 

Manufacturing Job Growth vs. Total Job Growth in U.S. from 2010 to 2015

The estimate from the BLS is commensurate with the decline the manufacturing industry faced before the recession, when it lost jobs from 2003 to 2008 (with the exception of 2006). This decline in manufacturing jobs is due to a variety of reasons, but maintaining large trade deficits for manufactured goods has certainly contributed to the decline. To bolster manufacturing jobs in the U.S., some politicians and policymakers propose harshly limiting trade with China, Mexico and other countries or imposing higher tariffs on manufactured goods.

Limiting Trade Would Give Us Different Problems

These policies would likely encourage the growth of the manufacturing sector, but it would also be a painful transition for the industry, its consumers and U.S. businesses alike. Initially, there would not be enough manufacturing plants and employees to meet the current demand for goods, and this could lead to shortages or price increases. If we use computer manufacturing as an example, this becomes clearer. 

Computers and related machines are one of the top net imports to the U.S last year. According to data from the Department of Commerce and Census Bureau, there were approximately 391 employer businesses in electronic computer manufacturing in 2013, and U.S. companies only shipped $9.7 billion in electronic computers in 2012. In comparison, the U.S. imported over $84 billion in computers and related machines in 2012. Even though these imports include related machinery, $9.7 billion is not enough to account for remaining dollar amount that is solely computers. In fact, Department of Commerce estimated that only 23% of computers and electronic products purchased in the U.S. in 2012 were made domestically and that 46% of imported computer and electronic products in 2012 were made or assembled in China. Given these figures, we can see that any policies to limit trade in this area would have potentially devastating effects, as the domestic industry would not initially be able to keep up with the demand from U.S. businesses and consumers. This would likely lead to price increases for years while the domestic industry ramped up production and shipment.

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