Agricultural Implications of President Trump’s Policies

By ·March 20, 2017
Robert M. La Follette School, University of Wisconsin-Madison

The Issue:

Nearly 70 percent of rural votes cast in the 2016 election went to Donald Trump. This phenomenon has been attributed in part to the declining fortunes of farmers. But rather than helping reverse this trend, several of the Trump administration's policy proposals would negatively affect the fortunes of the agricultural sector by depressing the prices received by farmers, reducing the demand for American agricultural exports, and raising production costs. Moreover, that portion of the agriculture budget aimed at supporting farm prices and incomes is likely to be squeezed to accommodate the increase in defense spending.

Proposed economic policies are likely to hurt agriculture by depressing the prices received by farmers, reducing agricultural exports, and raising production costs.

The Facts:

  • The fiscal policy of the Trump Administration will likely result in a stronger dollar and hence lower commodity prices. The combination of expansionary fiscal policies – tax cuts and spending increases –  and the Fed’s actions to stabilize output and inflation will result in higher interest rates and consequently a stronger dollar. Since commodities are typically traded in dollars in the international market, a stronger dollar makes commodities more expensive for other currency holders. This decreases the demand for these goods and causes their prices to fall. History bears out this relationship (see chart, which shows the link between the dollar and agricultural prices --the dollar exchange rate index is defined such that a decrease in this index means a stronger dollar).
  • Corporate tax reform threatens to exacerbate the dollar appreciation. The House of Representatives is considering a tax on cash flow that would treat exports and imports differently, popularly known as the “border adjustment tax”. One likely consequence of passing such a tax is that the dollar would experience additional pressures for appreciation, on top of those arising from the configuration of macroeconomic policies. The appreciation would put further downward pressure on export prices.
  • Net farm income is already being squeezed. The lower prices received for farm output arising from a stronger dollar will depress already declining farm incomes. The farm sector is a net debtor, so rising interest rates will raise the cost of borrowing for farmers. In addition, higher interest rates would likely drive down the already declining prices of farmland since the borrowing costs to mortgage these purchases would rise. In the past, the Federal government has provided income support by way of commodity price supports.  But the Administration’s budget outline limits this type of assistance in the future.
  • The more aggressive policies promised in the Administration’s New Trade Strategy threatens to provoke retaliation against U.S. exports, including agricultural commodities. The trade document states that the Administration will violate World Trade Organization (WTO) rules when it is in America’s economic interest. Trading partners will in such cases be permitted to retaliate against American exports, and agricultural goods are likely targets. About one fifth of U.S. agricultural output is exported and agricultural exports were $144 billion in 2016, 6.4 percent of total exports. Two of the countries that have come under greatest criticism for their trade practices by the Trump Administration, Mexico and China, are important export destinations for corn and meat products, and soybeans, respectively. Agricultural exports to Mexico were $17.7 billion in 2015, accounting for 4.5 percent of U.S. agricultural output alone; those to China $20.2 were 5.1 percent. Chinese trade restrictions that have already affected U.S. agricultural exports include antidumping duties on chickens and distillers dried grains, and tariff rate quotas on rice, wheat and corn. Phytosanitary standards have also been deployed to restrict imports. (Trade retaliation is also a potential risk with current tax reform proposals, for details see this Econofact memo.)
  • Mass Deportation would negatively affect agricultural output. One estimate places the number of undocumented workers in the agricultural sector at 350,000, out of a total of 2 million workers in the sector. Complete removal of all undocumented workers would measurably reduce output particularly in the fruit, vegetable and dairy sectors. Yet more undocumented workers are in the manufacturing sector – an estimated 889,000 – of which presumably a substantial portion is in the meatpacking and other food processing industries.  (See this EconoFact memo on labor impacts of immigration policy.)

What this Means:

The fortunes of rural areas, closely linked to the strength of the agricultural sector, are likely to suffer given the budget priorities of the Administration, and the conduct of macroeconomic, trade, and immigration policies. Those whose livelihoods depend upon agriculture may be unlikely to find the rising incomes promised during the campaign. In fact, their incomes seem vulnerable to being hurt by a range of policies of the new administration.


Agriculture / Exchange Rates / Immigration / Trade / Unauthorized Immigration
Written by The EconoFact Network. To contact with any questions or comments, please email [email protected].
More from Econofact