As the Trump Administration continues to borrow the Democratic message that globalization has left American manufacturing workers behind, some of our trade partners have chosen to retaliate by targeting American agricultural workers. As we rightly focus on whether our farmers will be hurt, however, it is important to recall the degree to which our trade agreements favor agriculture, and disfavor manufacturing. So it is that our policy has created a Sophie’s Choice between farmers and factory workers.
On the trade policy side, it comes down to rules of origin, which govern the amount of content that must originate in the region in order to qualify for preferential tariff treatment. Let’s look at the TPP rules.
For agriculture, these rules essentially require nearly 100% of the content of the product to originate in the region. In some cases, this makes sense. For example, with live cattle, you’re obviously not going to source the cow’s leg in say China if the rest of the cow is coming from the United States. But what about agricultural goods that have inputs, like cheese? Or commodities, which can be commingled, like soybeans? You could have rules that allow the milk for the cheese to be sourced outside the region; however, the rules are written to largely disallow it. In terms of soybeans, not only do at least 90% of them have to be sourced in the region, but so do the seeds you use to grow them.
Compare that to manufacturing. There has been much talk about the auto rules of origin in both TPP and now NAFTA. The TPP rules allow as much as 55% of an automobile to come from outside the TPP region – that is, they can come from countries that haven’t signed up to the agreement’s labor, environmental, or intellectual property rules. Would the agricultural sector accept that 55% of a round of cheese come from China? 55% of a bushel of soybeans? Unlikely. In that context, it’s no wonder the agricultural community largely supported TPP, and the manufacturing sector sounded alarm bells.
And it’s important to recall that the auto rules are among the strongest manufacturing rules in the agreement.
The answer to the pain that our trading partners seek to inflict on our farmers is not to decide to continue to let them inflict pain on our factory workers instead. The answer is to reconceive our domestic and international policy so that farmers and factory workers both get a fair shake.
(For more detailed analysis of how these rules work, please see this paper: Getting Rid of Sophie’s Choice.)