An Urban's Rural View

Whoever wins the presidency this November will bestow upon the country an industrial policy for manufacturing. Not the same policy, though. The two candidates will use different tools and support different industries.

Different, too, will be the implications for agriculture.

Industrial policy refers to government support for -- and protection of -- particular industries, using tools like tariffs, subsidies and research. Washington policymakers used to deride it. They believed markets allocated capital better than governments and free trade made the country richer than protectionism.

They didn't always practice what they preached, of course. Without calling it industrial policy, they supported, among other industries, housing with the mortgage-tax deduction, health care with the National Institutes of Health and agriculture with farm programs.

The auto industry got repeated help. President Ronald Reagan leaned on Japan to "voluntarily" restrain auto exports to the U.S. President Barack Obama bailed out Detroit after the 2008 financial implosion. And for 40 years the United States has had a 25% tariff on light trucks.

Still, industrial policy was mostly dismissed as "picking winners and losers" that would lead to "crony capitalism." Meanwhile, presidents worked hard to negotiate free-trade agreements.

As recently as 2012, Republican presidential candidate Mitt Romney attacked his opponent, President Obama, for having failed to negotiate a single free-trade agreement. Obama defenders noted that he'd signed three, even though they'd been negotiated by his predecessor.

Today, devotion to free markets and free trade is a thing of the past.

When Donald Trump took office in 2017, he pulled the U.S. out of a big free-trade deal with Asia. Later Trump, who calls himself "tariff man," imposed tariffs on washing machines, solar panels, steel and aluminum, followed by tariffs on a broader array of Chinese products.

Candidate Trump is promising tariffs that dwarf those from his presidency -- 60% on all Chinese goods, 10% on all imports from other countries. Recently he suggested 20% was possible. These would represent dramatic increases in the tariff level -- America's currently average about 3% -- and in the breadth of industries covered -- from a few to all. Some industries might get special protection; at one rally Trump promised a 100% tariff on foreign-made cars. (https://www.cnn.com/…)

As for Kamala Harris, she hasn't talked much about the issue, but many experts expect she'll build on President Joe Biden's industrial policy. That would have her relying less on tariffs and more on subsidies, tougher buy-American rules for government purchases and research.

Like Biden, she's less likely to support and protect metal-bending industries, more likely to shower favors on high-tech industries like semiconductors and environmentally sensitive industries like electric cars. Again, her tariffs won't likely be as high or broad as those Trump is touting; subsidies are likely to be the focus.

These are predictions and predictions don't always come true. Economists are warning that Trump's proposed tariffs would be a disaster; maybe they'll prevail on him to do something less drastic. Harris's silence leaves her especially free to confound the forecasters.

But if the predictions turn out to be reasonably accurate, the implications for agriculture in Harris's industrial policy are probably minimal. True, America's trading partners are unhappy about our subsidies for manufacturers and our buy-American rules, and some will respond with similar measures of their own. But those measures will most likely leave U.S. agriculture unscathed.

Tariffs are another matter. Trading partners are almost certain to retaliate with tariffs on U.S. exports -- and to aim those tariffs at export-dependent U.S. industries, including agriculture.

The American Farm Bureau Federation says exports account for about 20% of what U.S. farms produce, measured by value. For some crops, including soybeans, the percentage is much higher. When trading partners cut their purchases or even stop buying, commodity prices fall.

When China retaliated against President Trump's tariffs, 2018 U.S. ag exports to that country fell by more than half from 2017. And when Trump upped the ante with new tariffs, China stopped importing U.S. farm products altogether for a while. (https://www.reuters.com/…)

New and bigger tariffs could provoke a reaction that's even harder on U.S. agriculture. Last time, President Trump made up some of farmers' losses by dipping into the Commodity Credit Corporation kitty. He could do that again, but if his tariffs are bigger this time the retaliation will likely be bigger as well. There are limits to how much damage the CCC will cover.

As Trump points out, the U.S. has for extended periods in its distant past imposed big tariffs in the name of promoting manufacturing. And if whopping tariffs bring about an American manufacturing renaissance, many Americans would say they're worth it.

But that renaissance is far from guaranteed. What's nearly certain is that in the short run, trading partners would retaliate -- and U.S. agriculture exports would be among those in the cross hairs.

Urban Lehner can be reached at urbanize@gmail.com

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