With a brilliant victory in Iraq now a clear certainty, economic security issues will return to top priority for the Bush administration and Congress. To show the world that the United States is serious about re-asserting its international economic leadership, our policymakers should consider taking a unilateral action that Americans and other nations might actually applaud together: re-evaluating the 2002 agriculture bill and our current tariff regime with an eye towards reducing or ending both.
According to Organization for Economic Coordination and Development (OECD) data and calculations from Dan Griswold of the Cato Institute, completely eliminating the current web of subsidies and tariffs would provide the economic equivalent of an immediate $18 billion per-year tax cut for American consumers. As if to answer critics of most tax-cut plans, ending agriculture subsidies would also reduce the budget deficit by another $20 billion each year (the current annual federal subsidy level).
An added benefit of ending this agricultural protection racket is the positive impact such action would have on world trade. Argentina and Brazil are two nations that successfully liberalized their economies and grew throughout the 1990s. Unfortunately, their economies have been hard-hit by the current worldwide slowdown and anti-trade policies of the U.S. and the European Union (EU). Both nations would benefit greatly from U.S. agriculture reform, and in the process they might be deterred from turning to another round of statist policies.
Agriculture commodities account for 52% of Argentina’s exports, 33% of Brazil’s exports, and form a large percentage of the exports of other Central and South American nations. The Brazilian government estimates that within just four years of its signing, the U.S. farm bill will have cost the country $9.6 billion as the U.S. subsidizes exports, takes Brazilian market share, and drives down commodity prices worldwide. Brazil estimates that it loses $1 billion per year to the U.S. in orange juice sales alone due to subsidies and protections. Because of the generous cotton subsidies contained in the farm bill, Argentina estimates that it lost $1 billion worth of trade and Brazil estimates trade declines of $640 million.
Liberalizing U.S. markets could obviate the need for further bailouts from the International Monetary Fund (IMF), which totaled $70 billion between the two countries since 2000 and cost U.S. taxpayers millions of dollars each year. Unlike IMF bailouts, trade reinforces free-market behaviors and economic reforms instead of further distorting the national economies of developing nations and leading them down the road to dependency.
Agriculture is one of the few areas of the U.S. economy that actually runs a surplus each year; therefore it is absurd for Americans to directly subsidize the price of products purchased in foreign markets. The U.S. exports wheat at 46% below production cost and exports corn at 20% below production cost. Why should overburdened U.S. taxpayers foot the bill for food eaten by consumers in foreign countries?
To its credit, the Bush administration currently has an ambitious agriculture reform proposal before the WTO. The plan seeks to cut global tariff rates for agricultural products to 25% or below, with an average tariff rate of 15%. Trade-distorting domestic support would be cut to 5% of the country’s total agricultural production. The U.S. should at the very least implement its proposal unilaterally and allow other nations to follow our lead.
In acting now, the Bush administration should take encouragement from the successful agriculture policy reforms implemented by Australia and New Zealand. Before reforms were made in the mid-1980s, New Zealand farmers were even more dependent on subsidies than U.S. farmers are now. They survived subsidy cuts by improving efficiency, producing what the market demanded, and bargaining more strictly with suppliers. OECD data show that agriculture subsidies account for just 1% of the value of agriculture production in New Zealand, but they represent 22% of the value of U.S. farm production. Australia agriculture subsidies are 1/10 those of the United States. The U.S. gives $20,000 per year in support to each full-time farmer, while the Europeans give $16,000 per year to their farmers. Only Switzerland and Japan are more generous on a per capita basis.
Now is the time to get serious about U.S. leadership on free trade by pursuing agricultural regime change.
— Paul J. Gessing is director of government affairs for the National Taxpayers Union. Write to him at 108 N. Alfred St., Alexandria, Va., 22314, or visit www.ntu.org.