Tariffs and subsidies are always just exercises of political power. Dairy farmer interests are powerful in key states in the US (while the interests of consumers are diffuse), so they can work the political process to obtain some amount of public money. Presumably the same is true in Canada. Arguments between countries over tariffs and subsidies are just the same political disputes, played out against a different determination process.
Prices will go up… initially, because the goods are only made in the other country and now have an additional tariff. Eventually local industries might be able to compete at the new price - sadly, creating jobs that are risk of disappearing the moment the next regime decides to cut tariffs.
Some companies will benefit from rising prices, and their stock will go up. If retail profits are say, 10%… and the price is higher, then unless WalMart thoughtfully lowers their margin they will make 10% of the higher price. Invest in Walmart. Plus, as prices go up, the company with a decent inventory already landed gets a temporary windfall.
Then you get into the silly. One version of a tiny pickup made in Japan decades ago had backward-facing plastic seats mounted in the bed - apparently the 4-seater did not qualify as a pickup truck and escaped the tax on trucks. What is taxes and what isn’t? DO you end up with the untaxed components made overseas and assembled locally? How much of the material and sewing has to be done locally to make something not an import?
But it *can *have.
For example the microstate of Andorra deliberately sets no duties on goods and in turn many Frenchmen and Spaniards who live nearby or plan trips across the area plan pitstops in Andorra just to buy cartons of smokes or cases of booze - or even just to fill their tanks, all duty free and thus super cheap.
This ensures that outside money winds up in the Andorran economy and essentially outsources taxation to foreigners.
Does it make sense to raise the food budget on poor people so large agribusinesses can make more money? Because that’s what tariffs and import restrictions do. Convince me that a poor mother of four should pay an extra $50/mo for food so that the large dairy operation out of town doesn’t have to worry about competition from more efficient providers.
You should look at the example of New Zealand - a country that allowed its powerful agriculture industry to demand and receive subsidies and import restrictions on competitive agriculture products. The result was a reduction in quality, overproduction of poor quality veal which the government had to buy and render into tallow because no one else would buy it. Eventually, the government went nearly bankrupt and gave in to free trade and killed its subsidies. Farmers squealed and declared that disaster was about to ensue, but what actually happened is that they had to learn to be efficient and competitive, and New Zealand now has a healthy robust agriculture sector, and the government is solvent.
If Trump’s tariffs force Canada to end its government management of agrculture, at least one good thing will come of it.
Good example, Sam Stone, thanks.
Except of course New Zealand didn’t have to deal with a GDP on its doorstep 12 times its own with the logistical nightmare of driving over a line on a road.
IF the US eliminated the subsidies to its dairy farmers then I’d definitely agree to reduce support for supply management.
That said look at Producer Protection for Agriculture from the OECD Producer protection, Total, Ratio, 2000 – 2016 and Agricultural Support Agricultural support, Producer support (PSE), % of gross farm receipts, 2000 – 2016. I paired US/CDN and AUS/NZ. Neighbors match neighbors
**Producer protection **is defined as the ratio between the average price received by producers (measured at the farm gate), including net payments per unit of current output, and the border price (measured at the farm gate). For instance, a coefficient of 1.10 suggests that farmers, overall, received prices that were 10% above international market levels. This indicator reflects the level of price distortions and is measured by the Producer Nominal Protection Coefficient expressed as the ratio of farm price to border reference price.
Agricultural support is defined as the annual monetary value of gross transfers to agriculture from consumers and taxpayers arising from government policies that support agriculture, regardless of their objectives and economic impacts
Plus New Zealand currently finds itself positioned just as the US, producing/poised to produce substantial surplus, requires a new market to avoid a price crash. Guess who’s market they also have their eyes on?
There are no continuously expanding markets, so they are at best delaying the inevitable end game. Y’know, unless they decide to shift to matching production to consumption, at some point.
I’m not seeing how another nation’s insistence on over production can nessecitate a sacrificing of a cornerstone of this country’s economy. They are welcome to chase ever shrinking new markets if that’s what they want to pursue. But it shouldn’t obligate nations who prefer a different approach to be served up as a quick meal to a capitalist hungry ghost. (Hungry ghosts are always hungry never satisfied! FYI)
Competition between nations is a marketplace, and that is why we desire free trade - so that we can take advantage of comparative advantage and incentivize nations to do what they are best at in terms of what the web of world goods needs and what we all collectively value.
Take American Dairy. If it is true that Americans can outcompete Canadians in milk, it makes sense for both countries if Canadians buy American milk. This then frees up Canadians to do more of whatever Canada does best, and the entire global marketplace benefits from the added efficiency.
The problem, as always, is that this process naturally creates winners and losers, and quite often the losers have considerable political power. So they use their skills at influencing government to tilt the playing field away from their competitors. They sell the public on it using populist arguments and appeals to patriotism or the ‘common good’.
Overproduction is not the result of the market - it is the inevitable result of government interference in the market through subsidies, fixed prices, quotas, tariffs, and regulations. You don’t see persistent overproduction in the vast majority of mostly unregulated markets. When prices are free to float, markets clear.
Unfortunately, trade is an issue which is hellishly complex, because the economy is hellishly complex. For example, if my country has subsidized health care and yours doesn’t, doesn’t that in effect subsidize our companies, which can now out-compete yours? Should I face a tariff to ‘level the playing field’ because companies in my country have cheaper electricity than yours because of government subsidy of power?
You can actually make a case for all of it, and of course for any other intrinsic differences between countries. But that’s precisely why we trade in the first place! Comparative advantage is an optimization strategy. The reason it works is because every country has advantages compared to other countries.
You can’t evaluate a single market or subsidy without considering why it was put in place in the first place, as it may have been a reaction to some other imbalance. But better still, we should all just drop tariffs and let the chips fall where they may. If Americans want to subsidize Canadian milk, let them. Milk producers won’t like it, but poor people sure will. As will the other industries that sell Canadians more things with the money they saved on milk.
But when a nation decides their ‘comparative advantage’ is no growth hormones, much more production oversight, no endless pursuit of more, more, more market share, and independence in one of it’s main food staples, that should be respected as a philosophically different approach.
Bullying other countries and Forcing open markets (that host countries want protected due to fundamental differences in approach), should be rejected.
America’s argument for tariffs on softwood lumber amounts to; Canada has an unfair advantage since they have so much more virgin forest/crown land. When NOT in favour of the US, suddenly ‘comparative advantage’ needs to be eliminated. Funny how that works huh?
The other thing to consider is that except for a few walls, like dairy products, mostly the world runs on (relatively) free trade. So the current kerfuffle is not about everyone setting up a walled garden, it’s about one country - the USA - building a wall so to speak and keeping out everyone else. Canada will still get BMWs and Russian vodka and Korean steel and cheap shit from China and in fact, the price might go down a little bit from us as manufacturers seek to make up for declines in US consumption. We might even sell some agricultural products in greater numbers to China or Europe because our agricultural products won’t be taxed like US production.
However, we are the USA’s greatest trading partner - and they ours - so it will have a disruptive result.
The point is well made but Australia’s GDP is 7 times NZ’s and for two export orientated countries the ditch between them is a substantial but not insurmountable logistical barrier.
Very true. I did look at the ratios of population and GDP for new Zealand and Australia back in 1985 and they were (and are) large and given all exports from Australia face a sea crossing the hop to New Zealand would likely be the easiest.
However transport between the upper US states and Canada involves distances on the order of 100s of km along excellent highways/railways with a single border crossing that look to me to be trivial in comparison.
It’s really interesting how much, overall, agricultural subsidies have declined since 1986 Agricultural support, Producer support (PSE), % of gross farm receipts, 2000 – 2016. from around 32% for the OECD to 18%
I live on the ID/WA border and it happens here: WA residents go to ID for the cheaper gas, booze and tobacco. ID residents go to WA for weed. There is even a pot shop that is 6’ish miles from any WA town but it is about 1 mile from an ID town. Guess what state plates you see in that parking lot.
Yes, and definitely not coincidentally, the Cairns Group was founded in 1986.
So the justification is that Canadians need to pay more for milk to protect them from the possibility that someday a scenario might arise that forces them to pay more for milk?
That seems counter intuitive.
Are you advocating that Canada bully the US and force open the softwood lumber market? Maybe the the US has decided that they want more production oversight and no endless pursuit of more, more, more market share. Or maybe the US softwood producers are using the government to get money from the countrymen just like the Canadian dairy farmers are doing.
But none of that is the case, in fact. And if they wanted to protect an already established supply management system to fulfill their own needs, That’d be cool. But they are not meeting their own needs, or managing supply. Not a great comparison really.
Now explain how we should face a tariff because we have way more trees. ‘Comparative advantage’, ought to go both ways, I should think. We’re not seizing an existing market but filling demand your domestic production can’t meet.
Countries all over the world subsidize agriculture one way or another. (It was the mismanaged price supports for rice that brought down Thailand’s most recent elected government.)
It was more than a half-century ago that I first read how farming presents a unique problem for simple supply-demand analyses. The supply and demand curves associated with farm products and farmland are all very inelastic, except the demand for farmland which is very elastic. (I think there is an eloquent and succinct summary of why farming presents unique problems for which government subsidies are the solution, but I forgot it decades ago. Maybe some economist will help us out.)
The scenarios are more real than imaginary. Recall a few years ago when tropical drought made rice in short supply and the price soared. Or back in the 80’s when Farm Aid was all the rage because farms were failing due to a combination of prices and weather. Once a farm is off-line, so to speak, it takes a lot of investment to restart it. Farm equipment is not cheap, neither are supplies; and every season is a crap-shoot that may be hard to persuade the banks to support, if there is no government aid.
If the USA had had a lumber marketing board, then Canada would have no grounds for complaint. But instead, the US agreed to tariff-free trade, then as a result of local lobbying, made fictitious accusations of dumping and unfair subsidies to impose tariffs against everything the agreed to. Much like the current “national security” debate, the dispute is more about reliability of government promises than anything else.
The price of rice spiked 27.3% in 2008. However currently it is back down to historical levels and the price of rice is basically unchanged in the last 20 years. The price of milk in Canada averages $6.23 US. The price of milk in the US averages $3.50 US. So they are keeping the price of milk permanently 78% higher to protect against a one year spike of 27%. That is obviously nonsense.
What is happening is that, like the US does with softwood, they are giving in to local lobbying to protect against fictitious threats to buy votes with their countrymen’s money.