Notes on Essay Topic 2

International Economics Paper Notes Summary US agriculture policies have remained fundamentally change since the 1930s US Gov. continues to subsidize certain farm commodities through direct price supports and tariff rate quotas that limit imports Americans pay a high price for this ongoing government intervention in agricultural markets 6 Important ways reform would benefit Americans 1) Lower prices to American households Last year, programs took $16.2 billion from consumers and gave it to producers ($146 per household) Tariff rate quotas (allow limited amount of goods to come in the US with low or zero tariff, then applying a high rate after that quota is met) drive domestic prices above world market price by limiting domestic supply (tariff escalation) Barriers are the major tool of agri. Protection; account for 70% of total protection in OECD countries 2) Lower costs for US industries (confectioners, food processors, etc.) Those that use agriculture commodities in their final products; reform would lower prices of exported goods as well, allowing them to compete in international markets (due to lower raw material costs) Past 20 years, Sugary refineries in the US has dropped 23 to 8 due to high price of raw sugar Lower prices in Mexico allow cheaper production, US firms cannot compete Promote trade negotiations to open markets abroad for US exporters 3) Reducing farm subsidies would save US taxpayers tens of billions of dollars during the next decade Most of the subsidies go to the large farms, not ?family farms? Taxes (graph on page 7, 14 to 22 bil a year in taxes) PG. 7: top 5% of farms got 55% of all subsidies 4) Better for Environment by reducing the amount of top soil lost and damaging fertilizers and pesticides used by farmers Liberate farmland to be used for reforestation, recreation, and other environmentally friendly processes Without economic competition, no innovation; still use inefficient and non-eviron. Friendly methods ***As a result, trade barriers intensify production in countries that do not have a comparative advantage, necessitating more intense use of inefficient means Does not allow crops to be grown under more naturally favorable lands/conditions (like in Japan, Sweden, etc.) Takes water away from forest, everglades, etc; reallocating resources would increase national lands/forest 5) Would benefit farmers by promoting production of the crops that are in demand by the consumers Stimulate innovation and productivity gains on the farm and promote more economic diversity and dynamism in rural communities Competition is what stimulates these innovation Global barriers stunt all export growth, need to address in WTO to eliminate reciprocal barriers P 11; reforms in NZ eliminated many farms, but ones that survived increased efficiency, and productivity and growth quadrupled, GDP increased **Subsidies send out misleading signals that encourage production that would not be justified in a free and competitive market 6) Lower farm trade barriers would raise incomes of farmers in poor countries, reduce global poverty, create more hospitable climate abroad for US policy, enhancing security Gov. policy of direct taxpayers, barriers to imports, and export subsidies together depress global prices, distorting markets in lower income countries (when agri. Protection is unsubsidized) Set example, reciprocity, for other developing countries; needs to lead, EU and Japan have much more restrictive policies US often regarded as having unfair foreign policy