Frequent headlines proclaim the international stalemate over new world trade rules. Commodity association leaders tell about vast opportunities to sell our products abroad. But few of us ever have the opportunity for a first hand view, and since what is out of sight is out of mind, global trade might as well be in the next constellation down the road. But is it? Are we directly affected by global trade, and what will it do to the farm economy and employment opportunities for the rest of the family? Hmmm…is this something I should know about?

Bob Thompson thinks so. A well traveled scholar and international consultant knows many of the frontline and backroom players in the international trading game, and was asked by the Federal Reserve Bank of Chicago for help in understanding the impact of global trade on Cornbelt agriculture. What he told the Fed, is shared in a pair of newsletters. One is “Globalization and the Benefits of Trade.” The other is “Globalization and Rural America.”

Thompson says trade expanded significantly after WWII thanks to the development of rules that guide how trade should be handled. Trade barriers have been removed by wealthy nations, and lowered by lesser developed countries, allowing the easy movement of products and money. Nations increase their GDP by trading, and purchasing goods from other nations with a lower cost of production. Export growth bids up wages in low income nations, increasing purchasing power and demand for higher value products. Thompson says, “The current Doha Round of the World Trade Organization’s (WTO) negotiations is putting special emphasis on using trade to accelerate economic development in presently low-income countries. Out of the world’s 6.5 billion inhabitants, about half live on less than $2 per day, and 1.25 billion live on less than $1 per day. People with so little purchasing power do not represent market opportunities. The objective of the Doha Round is to create a trading environment in which broad-based economic growth can occur in the presently low-income countries.”

The globalization goals of the Doha Round of WTO talks is designed to achieve more economic power for all countries. But Thompson says that will require adjustment in each countries, as the market reallocates its land, labor and other resources. That reallocation may cause the loss of jobs as some industries find they cannot compete with the same industry in other nations. He says it is natural for business owners, laborers, and the politicians who represent them to complain about the change being made. US workers who are highly skilled and well paid may find fewer jobs because of lower wage countries, where workers are selling their greatest resource which is low wage labor, in an effort to increase their economic base. When Congress recognized that the gains of gainers were more than the losses of the losers, it established trade adjustment benefits to the companies and workers that were the losers, in an effort to insulate them from the losses of a declining industry. He says it is appropriate that society bear the financial burden of the trade adjustment process instead of it being on the shoulders of individuals.

Agriculture, Thompson says, has benefited from globalization, “American agriculture sells the production of one acre out of three overseas; this generates one-quarter of U.S. farm sales revenue. Without this outlet for its enormous productivity, American agriculture would be much less profitable, and land values, which make up a significant part of many rural communities’ tax base, would be lower.” But in recent years, the balance of agricultural trade has nearly equalized, exports have expanded for Brazil and other agricultural nations, and the rural US economy has come to rely on non-farm income to sustain itself. Thompson says as per capita income rises, the number of farmers declines. But those who are left on the farm with larger acreage, and those who sought urban employment opportunities are both enjoying higher incomes. Part of the success in agriculture Thompson attributes to advancements in research which has spurred productivity 2.6 fold in the past 50 years, all with fewer inputs. But Thompson says many of these changes would have occurred naturally, and without the help of globalization.

With the current round of discussions about world trade, comes the examination of highly subsidized and protected agricultural economies. Many of the benefits are retained by the owner of the land, rather than the operator, and that has given rise to land values. Governments are reluctant to change many of their policies because of the potential for land values to fall. Thompson indicates that productive land will always remain in production, but the value of the land is something that could change with changes in policy. In the US, farm policy has focused on subsidy programs, not rural development programs, and any change in farm programs could change the value of the land, subsequently impacting the tax base of rural communities. He says a rural policy, rather than a farm policy, would be more sustainable for the farm economy.

Thompson believes that US agriculture has a comparative advantage over many nations because of our resources, but also because of our farm policy, which has helped promote commodity exports, “International competition in the production of raw commodities is brutal. Because commodities by definition are undifferentiated, whoever can produce them at lowest cost will get the sale.” However he says the US does not have a comparative advantage when it comes to low paying unskilled labor jobs, and many rural areas fear that jobs in the community will be lost to other countries, “An important focus for policymakers interested in rural development should be on upgrading the quality of schools in rural areas. Higher quality education leads to a stronger local work force, while making communities more attractive places to live for potential employers and workers from elsewhere. Better educational opportunities are essential for rural communities seeking to be competitive in either agriculture or non-farm employment.”

Globalization has been fostered by the declining cost of transportation and communications. While many rural communities have comparative disadvantages in those areas, there opportunities can improve with the expansion of broadband Internet access. Rural communities can become global players by making themselves attractive to an in-migration of skilled workers following highly paid jobs and a good quality of life. However, economic development will bring social and economic change to rural communities, which must be met with an open mind of acceptance and entrepreneurial spirit.

Summary:
Globalization is bringing about a change in the world economy through trade, which will raise the economic lot of some nations and their workers, and create change in other nations where employment opportunities will have to be restructured. Comparative advantages will be claimed by those with a lower cost of production, which may not be traditional sources of those commodities and services. As a result of the change, rural America may be concerned about its future, since many farm families depend on off-farm jobs. Rural communities which restructure themselves will find new opportunities as part of the global market.