March 15, 2002

March 15, 2002 | WebMemo on Trade, Economic Freedom

$175 Billion Dollar Barrier to Trade

As the world is still reeling from last week's decision on steel, the United States is preparing to drop another bomb. Unfortunately, this one is not aimed at the Taliban. The target: our friends and allies. The weapon will come in the form of a farm bill worth $175 billion. The farm bill greatly increases subsidies to American farmers. Subsidies are a non-tariff barrier and distort the market. The United States lost respect in the global market by imposing 30 percent tariffs on imported steel and will lose more if the President signs this bill.

The United States needs more trade not less. Measures such as the tariff on steel and agricultural subsidies invite retaliation. With 96 percent of the world's consumers living outside the United States, retaliation can be extremely painful when other countries start putting high tariffs and quotas on our goods.

America is the largest agricultural exporter in the world. Every one out of three acres grown is exported. According to the U.S. Department of Agriculture, in 2000, Iowa exported nearly over $3 billion in agricultural products. Additionally, the USDA reports that these exports helped support over 48 thousand jobs both on the farm and off the farm in food processing, storage, and transportation. Jobs supported by exports are estimated to pay 13-18 percent more than non-export jobs. As America emerges from a recession, opportunities for American workers should not be gambled with.

If history is any guide, retaliation from other countries is a sure thing, the European Union (EU) will not sit idly by while America preaches one thing and does another. For instance the recent case over U.S. tax treatment of Foreign Sales Corporations (FSC) was most likely retaliatory. The Financial Times reported that "The case was initiated mainly to hit back at U.S. harassment over the EU's disregard for World Trade Organization rulings against its beef ban and banana import regimes."

Though the bill is in conference and has not reached the President's desk, the Europeans have already started to analyze and criticize what its effects will be. If the President signs this bill, a complaint to the World Trade Organization is likely as well as an arms race of subsidies and tariffs between the EU and the United States. President Bush should move forward with his free trade agenda by vetoing this bill. Anything less will only hurt American exports and America as a whole.

Sara J. Fitzgerald is a Trade Policy Analyst in the Center for International Trade and Economics.

About the Author

Sara J. Fitzgerald Policy Analyst
Center for Trade and Economics (CTE)

Related Issues: Trade, Economic Freedom