KANSAS CITY, MISSOURI, US – The tug of war between free trade and protectionism in a world that’s becoming increasingly geopolitically unstable is worth watching in the coming months, with federal elections being held in dozens of countries, including the United States.
The US election is noteworthy as it pits former president Donald Trump, who makes no secret about favoring large tariffs on imported goods, particularly when they’re produced by countries not allied with the United States, against current vice president Kamala Harris, who has been part of the Biden administration that also has shown protectionist tendencies, particularly regarding China.
It was during Trump’s first term (2016-20) that the United States became embroiled in a nasty trade war with China. Among the items on the high-tariff list were US soybeans. After many years of relying on the United States as its primary soybean supplier, China began importing a larger share from Brazil, a trend that has continued long after Trump lost his re-election bid and the trade war cooled. If re-elected, Trump has promised a 60% tariff on Chinese imports, which would almost certainly lead to retaliatory tariffs on US agricultural commodities.
The big question is whether Harris would continue with the Biden administration’s protectionist measures, if elected. If so, the election will be less consequential in terms of its impact on trade.
The election of Javier Milei, a populist and nationalist cut from the same cloth as Trump, as president of Argentina last November is impacting the MERCOSUR trade bloc comprised of several South American countries, including agricultural powerhouses Brazil and Argentina.
Founded in 1991, MERCOSUR has helped its members, which also include Paraguay and Uruguay, pull in one direction regarding trade policy. But Milei has threatened to pull Argentina out of the alliance, a stance reinforced by his decision to skip the MERCOSUR Summit in July. Although reviled by globalists and big government advocates, Milei is popular with Argentine farmers for vowing to remove regulations that they say harm their ability to produce and export grain.
One could argue that MERCOSUR has run its course. Three decades ago, countries in the region were starting to embrace free-market ideas, and the alliance initially helped send capital surging across borders. But it has become less effective due to political volatility and loopholes in the group’s common external tariff that members have exploited.
In addition to protectionism, global agricultural trade has been under tremendous strain the past four years because of logistical problems related to the COVID pandemic, a war between major grain exporters Russia and Ukraine, and soaring inflation. To try to tame food inflation, some countries have halted or limited grain exports, including India, which continues to ban wheat and rice exports. Holding on more tightly to what is yours is a natural tendency in times of uncertainty and instability.
Given the tension between the United States and China, and the wars being fought in Eastern Europe and the Middle East, a return to a golden era of agricultural free trade anytime soon is unlikely. That’s unfortunate, because protectionist policies harm farmers and put countries that depend on agricultural imports at higher risk for food insecurity. The world is better off when products are flowing freely between countries.