What Does a “Tariff War” Mean for Rural Communities?

Facebook | Instagram | LinkedIn | newruralvirginia.org

The Trump Rural Impact Report #2

The Rural Angle readers have no doubt noticed that world financial markets have been on a wild roller coaster this past week – but mostly headed straight down. And, worryingly, many market watchers think it could still get much worse. As the Bloomberg website wrote at the end of the week, “…a fundamental shift … has taken hold among investors, traders and analysts. Serious questions now exist around the wisdom of owning American assets that until recently were the envy of a risk-obsessed world.”

That said, should rural communities care that the financial markets are hurting? Isn’t this just a case of Wall Street indigestion, unconnected to the lives of regular Americans?

Unfortunately, no. Remember the recession of 2008? It was caused completely by financial shenanigans by big financial corporations. But it was regular main-street businesses and workers who got hit the hardest. Why? Because Big Finance’s mistakes kicked off a chain of events that knocked the entire economy flat on its back.

And unfortunately, that may be what is about to happen to rural communities all over again. Because, no matter what financial markets do tomorrow or the day after, Trump has already set in motion an economic set of dominoes that will likely impact rural communities, and indeed the entire nation, for years to come.

To better understand the danger, let’s look at, first, what is the direct effect on rural communities that is already baked in, and second, what could be the indirect impact on us if the tariff wars go horribly wrong.

--A probably permanent decline in agricultural exports: as the American Farm Bureau writes, 20% of our agricultural production is exported. In the short term, the tariff war will cripple exports to certain countries, particularly China, our largest importer of agricultural products. Even if the tariff war eventually ends, however, the lesson our international clients will take away is that the US is not a reliable supplier. They will therefore pivot to buying from other countries – even if the cost is higher. Moreover, all of these lost markets have already driven down agricultural prices here in the US. The bottom line: a double whammy for farmers – a probably permanent loss of export markets and lower prices for what they do sell.

--A significant rise in operating costs for farms and small businesses: like it or not, the reality is that much equipment (and especially spare parts) are manufactured today only in China. Farmers and small businesses are going to be hit by a major increase in their operating costs.

--A return to policies that favor Big Ag over small farmers: in his zeal to cut government programs and staff, Trump has already eliminated programs that have given small farmers access to local markets, such as the Local Food For Schools program. But it is keeping the much larger direct commodity subsidy programs, which primarily benefit Big Ag.

--An overall drop in new investment in businesses and factories (and jobs): the reality is that companies really need long-term policy stability to make big investment decisions. When the administration changes policy literally every day, CEOs become scared to invest at all. Take the example of General Motors, which has invested $35 billion in an integrated North American supply chain -- based in part on a trade deal that Trump himself negotiated only 5 years ago. No CEO can afford to toss such huge investments out the window. Instead, companies may “announce” new factory plans to curry favor with the administration, but then just never get around to actually building them…. The bottom line: policy uncertainty and instability is simply bad for business – and job creation.

--The new “don’t buy American!” movement around the world: what happens when you insult your friends and customers? They get mad at you. And don’t want to buy your products. That is exactly what is happening in Europe and Canada. Even tourism to the US is dropping. (The sharp drop in Canadian visitors is hurting businesses along interstate 81 in Virginia.) The bottom line: the world is angry and it is taking it out on America. Will it continue?

--Lots more inflation for rural families: let’s face it: it has taken 30 years to get to where what we buy at Walmart today is mostly imported. There is no way to change that overnight. It will take years, not just to build physical factories but to recreate the engineering, supply chain and skilled labor expertise. And in many cases, for reasons explained above, it will never happen. The bottom line: we are all going to just be paying a lot more. In fact, estimates are that Trump tariffs will cost the average family $3,800 per year.

--Losing government services that support the rural economy and rural families: the Trump administration has already fired 60,000 federal workers – and that is only the beginning. The Dept of Agricultural is planning to fire at least another 9,000 workers, Social Security 7,000 workers, and so on. And that is before next year’s budget slashes spending even further – and is likely to include steep cuts in Medicaid and other healthcare funding on which a large percentage of rural residents depend. The bottom line: many programs that are vital to local rural communities, such as food banks and small farms, are in serious jeopardy.

Making predictions in a Trump presidency is a daunting challenge, given his extreme… unpredictability. That said, should he continue to pursue a tariff war, most experts think the following seem likely:

--A recession: the combination of reduced export markets, higher import costs, slashed government services, and panic in consumer and business circles is a deadly one for the economy. That is why, in just a few weeks, a strong economy has swung towards recession, according to most economists.

--A permanent increase in interest rates: for decades, America has had the good fortune to enjoy lower interest rates than the rest of the world. That is because the US was considered so strong and stable that the entire world wanted to own US Treasury bills. And that meant a lot of foreign capital to help power the American economy and keep interest rates low. But that may now be changing. Because, although Trump may love uncertainty, the rest of the world hates it.

--A tax structure skewed even more in favor of the wealthy: Trump’s goal of using the $700 billion in tariffs to fund next year’s income tax cut will (if successful) massively favor big business and the wealthy (who benefit the most from income tax cuts) over the middle class, small businesses and farms (who will be most affected by tariff-caused inflation).

--A long-term win for monopolies and big corporations: severe economic stress always creates winners and losers – and the winners are usually those who have deep financial pockets and can ride out financial storms. In short, big corporations and the super wealthy. They will be able to hunker down or raise prices to cover their increased costs, while small businesses may simply just run out of money.

Whatever Trump thinks he is trying to do, the methods he is using seem likely to not only not work, but to create real economic pain.

It doesn’t have to be this way, however. There are other approaches that would be much more effective. In coming editions, the Rural Angle will explore those ideas. So stay tuned!

A postscript for our longtime readers: We are about to go live on Substack, which we hope will make it much easier to reach a wider audience. For the time being, you will be able to read us on either platform.

The New Rural Virginia team

Looking for the Trump Rural Impact Report #1? Find it here.

New to The Rural Angle? Subscribe below!