November 29, 2018 Patrick Oliver-Kelley

A US market sell-off led by technology stocks wiped out gains for entire 2018 stoking fears that the US could face significant challenges. Though the economy appears strong, unemployment is low, corporations are producing large profits and wages are beginning to rise, slides in stocks are often the first sign of trouble. In this case the slump reflects concerns about privacy lapses and mismanagement at tech companies, as well as fears of slowing growth and the impact of Trump’s trade war with China. Our budget deficit of over $100 bn in October cannot be ignored indefinitely.

America’s farmers are at the center of Trump’s trade war. More than 1/5th of agricultural exports face new tariffs. This all reminds us the 1980s when the US suspended grain sales to the Soviet Union, interest rates rose, incomes sank and many farmers left the business completely. Today, American farmers are titans of international commerce, due in part to government subsidies as well as productivity measures helping efficiencies and yields. These helped depress soybeans and corn prices, even as land and fertilizer remained relatively expensive. So, this trade war is particularly ill-timed. Trump and Xi Jinping are due to meet at the G20 summit, but neither seems anxious to concede much. When one export market shuts, it is very difficult to divert goods elsewhere. Soybean farmers are particularly concerned that trade flows will shift permanently. Economists expect the average farm loss of $70,000. In 2015, 51% of output came from farms with sales of less than $1 million compared to just 31% in 1991.

The government may also become more involved in agriculture to muddled effect. Trump disrupted global trade flows by using $12 Bn of taxpayer money to offset farmer’s losses. The risk is that American farmers become less competitive and more distorted.

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