Trade Matters

Trade has been taking it on the chin as of late.  Leading politicians are decrying trade partnerships like TPP and NAFTA.  In addition, the Environmental Working Group (EWG) released a report a few weeks ago challenging the argument that US agriculture needs to "feed the world".  While I happen to agree that "we need to feed the world" is not perhaps the best way to frame the future challenges, I'm not so sure about the arguments they make either.   Basically they argue something along the lines of the following: well, we don't really export that much anyway, and the people we export to are pretty rich, so we're not really feeding the world.  More on that in a minute, but first on the statistics.  

Trade is a big deal for U.S. agriculture.  The data from the USDA shows that we export about 20% of all the agricultural output (both in terms of volume and in terms of dollars).     

And, the share of agricultural output that is exported is much higher for particular commodities.  As the below graphs shows, for example, more than 80% of the U.S. cotton crop and over half the U.S. wheat crop was exported to other countries in 2013.  

While trade has no doubt has some deleterious effects on certain kinds of manufacturing jobs, these data make it quite clear that if you're a wheat or cotton farmer, trade is a very big deal.  Most of their customers reside outside the United States.  

Let's take a look at wheat since it is mainly used as human food.  Where does that wheat go?  Here's some USDA data.

Yes, some of these countries, like Japan, are relatively wealthy.  It shouldn't be surprising that relatively wealthy countries are relatively big importers of U.S. products: they have the money to buy things that poorer countries can't afford (this shows up particularly when one looks at meat exports because meat is a relatively expensive food).

Back to the Environmental Working Group's argument.  Many, if not most, of the countries in the above list have hunger and food insecurity rates far above that in the US Moreover, their per-capita GDP is far below that of the U.S.  What would be interesting to see, but I don't have the time to compile, is how these trade statistics look compared to domestic production in say, Japan, Mexico, Nigeria, etc.  That is, of all the food eaten in these countries, how much comes from the US?

A couple other points about trade are worth noting.  First, there are other large producers of wheat, corn, soybeans, etc.  And we all compete for international customers (and sometimes we trade with each other).  That is a very good thing because if we have a drought in the U.S. or in China, trade allows us to smooth out the impacts.  So, even if one looks just at a snapshot in time and says, "see trade isn't that big a deal", look again when we have a major crop failure in a particular part of the world.  Prices and food consumption in the U.S. would be more volatile if we didn't have world trade buffering the shocks.  

Second,  many developing countries have really restrictive trade policies and trade barriers.  Thus, in some cases we don't send food to hungry people in other countries because their governments don’t allow it (here's a great paper comparing agricultural policies across the world).  

Finally, I'm not sure whether and to what extent food donations and assistance to developing countries are counted in trade trade statistics.  To the extent they're not, people in the developing world are eating more U.S. food than the trade statistics would suggest.   

So, the next time the issue of trade comes up, don't forget about the diverse foods we enjoy at lower prices than we otherwise would because we buy from farmers in other countries, and don't forget the extra income that U.S. farmers enjoy from being able to sell to customers in other parts of the world.  

P.S.  After some Twitter feedback, I should clarify that not ALL farmers benefit from trade.  Here is data on U.S. food and agricultural imports (the biggest are seafood and fruit).  U.S. farmers who, for example, grow catfish are indeed in competition with foreign fishermen and fish farmers.  However, for most agricultural goods, the U.S. is a net exporter.  But, even if we weren't, it wouldn't mean trade is bad.  Even in this case, U.S. consumers would benefit by having access to less expensive food (and different types of food) from other parts of the world.  It isn't helpful to think of trade as a zero-sum game (or in the old mercantilist mindset), but rather trade expands the size of the pie making more food available for consumers everywhere (though of course there are some winners an losers along the way).  It isn't just the volume of trade that matters either.  For example, we export beef to Mexico and we import beef from Mexico.  How does this make sense?  Because it isn't the same type of beef: we're importing high value steaks and we're exporting different cuts that Mexicans prefer in their cuisine.