Our ridiculously big agricultural trade surplus (random thoughts on ag and trade)

[Recursion]

Just some thoughts I've had from a project at my job (I work at an ag policy think tank).

In our concern about US manufacturing I think we sometimes forget an area in which the US still is an unquestioned world economic leader: agriculture. And agriculture is a good example of why trade policy really isn't simple.

As an example, we have a large overall trade deficit with China, but we have a massive agricultural trade surplus: we're selling them a huge amount of agricultural products, and they are selling us back a larger amount of manufactured goods. Take your sneakers. They were probably made in China, but if so they were almost certainly made with leather from American cows (hides and skins are second only to soybeans among US farm exports to China). American farmers win, American shoe consumers win, American shoemakers lose (coming up with a calculus to determine the total winnage and lossage there is not easy - farmers love NAFTA, since it lets us sell an absurd amount of corn and soybeans in Mexico, and it's hit Mexico's ag sector harder than it hit our manufacturing sector).

It's important to remember, China has 4 times as many people as the US but a slightly smaller area, and less of that smaller area is habitable (most of the population lives between the Yellow and Yangtze rivers; imagine the US flipped on its side with most of the population between the Mississippi and the Rockies).

The numbers look good in a lot of ways: we have a 34 billion dollar ag trade surplus – that's the market capitalization of Target Corp. We get a Target's worth of money every year from other countries buying the output of our farms and ranches over what we buy from theirs. This is a good thing.

So what do we export? Well, primarily what we subsidize: soybeans are the undisputed king, accounting for 18 billion dollars in trade surplus annually (on 120 billion in total exports), nearly twice the next on the list which is corn. And we have the capacity to make and sell many other things: we're one of the top cattle countries in the world, and we have excellent fruit capacity also, and of course tobacco – and there are more smokers in China than there are people in the US total.

That gets me to the point that this isn't just about food: cotton, tobacco, hides, and non-food oils account for almost as much of our exports as soybeans – and some of those soybeans end up being processed for industrial uses, anyways. Yes, we've lost a lot of our manufacturing but we've also gained a significant amount of agricultural sales in the process: we're growing more cotton and leather because China is using those products to make the stuff we used to make here. Again, some winners, some losers.

I mentioned subsidies a little earlier: these play a huge and poorly-illuminated part in how our economy works. We subsidize large monoculture cereals farms for several reasons. On the one hand, a lot of our land is land that is pretty good at growing large amounts of cereals. But on the other hand, the plains states have dominated our agriculture policy for a long time.

But there's no reason they have to: Chuck Schumer represents more farmers than Max Baucus. But Schumer is not on the ag committee. Neither are Boxer or Feinstein, despite the fact that they represent more farmers than the sum of all the farmers represented by the committee's members. We sell what our policy cares about, but that rewards states with high percentages of farmers (like Montana) rather than states with high actual numbers of farmers but low percentages.

I guess my point is this: we can use agriculture to be to our economy what manufacturing once was, or at least a lot of it (and, don't forget, we still lead the world in manufacturing). But that will take more of the country caring about agriculture than currently does.

This is why I'm excited about the whole foodie/locovore thing despite the fact that my work is with large industrial ag companies. If we have city dwellers at least thinking about where and how their food is grown, that's an opportunity to get some of the governmental attention away from ConAgra and Monsanto. Because if people like Chuck Schumer have a higher percentage of constituents who care about farming, they might do more to represent the very high actual number of farmers they represent.

Temple Grandin has said that it's very important for big ag and small ag to stop throwing rocks at each other, and I completely agree. Locovorism is not going to be a threat to soy's dominance of American agriculture any time soon. And it shouldn't – we're an ideal country for growing soybeans, and we get a whole lot of money into our economy and employ a whole lot of people growing them. But we do need other voices. This can be a real engine of prosperity for the country, but we have to be willing to look at all of our agricultural output, not just the preferred output of certain states and companies.

[pampango]

1. While our agriculture is very productive and a great export, its profitability depends on subsidies

from the government. These subsidies are not only expensive and largely regressive but they have resulted in penalties in several cases from our trading partners.

[Recursion]

4. Agreed. If we decide we must subsidize...

...we should take the Canadian model and subsidize the farmer rather than the crop, which would also do a lot to loosen ConAgra's grip on policy.

[dmallind]

2. Useful thoughts, but I predict murch sturm und drang

Mostly about the different level of labor required for agriculture vs. manufacturing, but also about ecological impact, the destruction of local production in Mexico etc, and of course outright dibelief that we manufacture anything but weapons. Not only are we selling the leather to the Chinese shoemakers but also more than likely selling them the extremely expensive custom assembly and inspection equipment used to produce them (people have the silly idea that Chinese manufacturers are dirt floor tin-walled shacks where everything is done by hand. No doubt such places still exist in the hinterlands, but trust me as someone who has sp=ent a fair amount of time in Chinese plants, the ones producing very high volumes are heavily automated and customized). We probably also sold them the heavy equipment that built the damn factory.

China firms can spit out plastic parts. They can even make most of the mold tools (although they have a tough time with very close tolerances and complex geometry even today). They however can't produce injection molding presses worth a crap, nor automated gate removal, conveyance, assembly and testing machinery to deal with those plastic parts yet. Will they learn? Sure, and pretty soon, just like they will learn to apply Lean and CI techniques to deal with their competitive disadvantage of requiring huge volumes, but by that time they will no longer be a low-cost provider, and it will be Africa or the lagging SE Asian nations who start the same learning curve.

[Recursion]

3. That's a great point: we do build a lot of China's factories, essentially

And a lot of their factories outsource their prototyping to us