Whoever wins this November will bring an industrial policy for manufacturing to the US, but it won't be the same policy. The two candidates will use different tools and support different industries.
The impact on agriculture will also be different.
Industrial policy refers to government support and protection of particular industries through tools like tariffs, subsidies, and research. Washington policymakers used to ridicule it, believing that markets allocate capital better than governments and that free trade makes countries richer than protectionism.
Of course, they didn't always practice what they preached. Rather than calling it industrial policy, they implemented, among other things,
For housing, it's the mortgage tax credit, for health care, it's the National Institutes of Health, and for agriculture, it's the farm program.
The auto industry has often received help: President Ronald Reagan pressured Japan to “voluntarily” curb its auto exports to the U.S., President Barack Obama bailed out Detroit after the 2008 financial crisis, and the U.S. has imposed a 25% tariff on light trucks for four decades.
Yet industrial policy was largely ignored as it would “pick winners and losers” and lead to “crony capitalism,” even as presidents eagerly pursued negotiating free trade agreements.
As recently as 2012, Republican presidential candidate Mitt Romney accused his opponent, President Obama, of failing to negotiate a single free trade agreement, with his defenders pointing out that Obama signed three agreements that his predecessor had negotiated.
Today, the commitment to free markets and free trade is a thing of the past.
When Donald Trump took office in 2017, he withdrew the US from major free trade agreements with Asia. Then, as he calls himself “the Tariff Man,” he imposed tariffs on washing machines, solar panels, steel and aluminum, followed by tariffs on a broader range of Chinese goods.
Candidate Trump has promised tariffs far beyond those imposed under his own presidency: 60% on all Chinese products and 10% on all imports from other countries.
Recently, he suggested 20% was possible, which would mean a dramatic increase in tariff levels (currently the U.S. average is about 3%) and a broadening of the industries targeted (from a few to all).
Some industries may get special protection: At one rally, Trump promised to impose a 100% tariff on foreign-made cars.
Kamala Harris hasn't said much on the issue, but many experts expect her to build on President Joe Biden's industrial policies, which would mean she would not rely on tariffs.
Strengthening American-made purchasing rules for grants, government procurement and research.
Like Biden, she is unlikely to support and protect the metalworking industry and is more likely to benefit high-tech industries like semiconductors and environmentally-conscious industries like electric vehicles. Her tariffs are also unlikely to be as high or broad as Trump has touted, and are more likely to focus on subsidies.
These are predictions, and they don't always come true. Economists have warned that Trump's tariffs would be a disaster. Maybe they'll persuade him to take a more moderate approach. Harris' silence gives her particular freedom to confound the prognosticators.
But if the projections are reasonably accurate, the impact of Harris' industrial policies on agriculture will likely be minimal.
To be sure, America's trading partners will resent subsidies to U.S. manufacturing and restrictions on purchasing U.S. products, and some will likely respond with similar measures, but such measures will have little impact on U.S. agriculture.
Tariffs are another issue: Trading partners would almost certainly retaliate with tariffs on U.S. exports, which would be targeted at export-dependent U.S. industries, including agriculture.
Exports account for about 20% of what U.S. farmers produce by value, according to the American Farm Federation, and for some crops, such as soybeans, the percentage is even higher. When trading partners reduce or stop buying goods, commodity prices fall.
After China retaliated against Trump's tariffs, U.S. agricultural exports to China fell by more than half in 2018 compared to 2017. Then, after Trump ratcheted up the tariffs with new ones in 2019, China stopped importing U.S. agricultural products altogether for a time.
New, higher tariffs could trigger a harsher response from U.S. agriculture. Last time, then-President Trump used the Commodity Credit Corporation's funds to cover some of farmers' losses. He may do the same this time, but if the tariffs are higher this time, the retaliation is likely to be even greater. There is a limit to how much damage the Commodity Credit Corporation can cover.
As Trump points out, the US has a long history of imposing high tariffs in the name of boosting manufacturing, and many Americans would say that if huge tariffs bring about a manufacturing revival in the US, they're worth it.
But a comeback is far from guaranteed: In the short term, retaliatory measures from trading partners would almost certainly target U.S. agricultural exports.
Urban Lehner, former Asia correspondent and editor of The Wall Street Journal, is editor emeritus of DTN/The Progressive Farmer.
This article was originally published on Aug. 22 and is now republished with permission from Asia Times and is © Copyright 2024 DTN/The Progressive Farmer. All rights reserved. Follow Urban Lehner at X @urbanize.
