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Trump’s $12 Billion Bailout Is No Remedy for Farmers Caught in Trade War

Additional subsidy angers some lawmakers, and could cause problems at the WTO.

Keith Johnson
Foreign Policy, July 31, 2018, 6:00 PM

Workers transferring soybeans at a port in Nantong, China on April 9. (AFP/Getty Images) 

Trade and agriculture experts are warning that U.S. President Donald Trump’s planned $12 billion farm bailout amounts to a misguided attempt to cushion the damage of the administration’s increasing use of tariffs against trading partners and is unlikely to address the long-term risks farmers face of losing their lucrative export markets.

The subsidy, outlined last week, could trigger a challenge at the World Trade Organization, where the United States is already under fire for using questionable justifications to impose tariffs on steel and aluminum, the experts said.

It has also angered some lawmakers who want protections for industries in their own home states.

Trump administration officials are working to finalize the details of the aid program—which will benefit farmers caught in the crossfire of the trade war with China—by the U.S. midterm elections in November.

The idea is to use a combination of price supports for depressed crops, purchases of surplus commodities, and assistance in promoting exports.

“A bad tariff policy shouldn’t be used to justify other bad policies,” said Daren Bakst, an agricultural expert at the Heritage Foundation.

The unusually large aid program, which has been in the works since China first threatened to curb purchases of U.S. farm products in retaliation for U.S. tariffs, marks the administration’s latest use of decades-old legislation enacted by past presidents to advance its economic policy.

To justify tariffs on China, it relied on Kennedy- and Nixon-era legislation. The administration is using 70-year old Truman-era laws on energy and national security to prop up the coal sector. The farm bailout comes directly from President Franklin D. Roosevelt’s Great Depression-era aid programs.

The bailout, and work on additional tariffs on as much as $200 billion worth of Chinese goods, contrasts sharply with the Trump administration talk of a zero-tariff, zero-subsidy world.

Farmers and agricultural lobbies have cautiously welcomed the assistance. But most stressed that they’d prefer to have more access to overseas markets—like those that would have been opened up by the Trans-Pacific Partnership or a similar trade pact with the European Union, or the huge Chinese market partially closed in response to the Trump administration’s decision to levy tariffs on hundreds of billions of dollars of Chinese goods.

“Our emphasis continues to be on trade and restoring markets, and we will continue to push for a swift and sure end to the trade war and the tariffs impacting American agriculture,” said Zippy Duvall, the president of the American Farm Bureau Federation, in a statement.

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The main tool the administration is reaching for is a $30 billion-a-year fund created in 1933 to help farmers hit by the Great Depression. Known as the Commodity Credit Corporation, it gives the executive branch the ability to funnel public money to agriculture without consulting Congress. (After President Barack Obama used the fund to provide disaster assistance to rural areas, Congress put restrictions on using it, then reopened the fund for President Donald Trump.)

The assistance comes on top of about $15 billion a year that agriculture already gets from the government in the form of price supports, subsidized crop insurance, and the like. Those programs are meant to cushion farm incomes in case of poor harvests or falling commodity prices—such as the price collapse that hit U.S. soybean producers this year.

“The administration hasn’t made the case why existing programs aren’t sufficient for this alleged harm,” said Bakst. He noted that the assistance was designed at a time when farmers’ median household incomes were much lower than the national median; now, farm households are wealthier than most.

Members of Congress are questioning why farmers are apparently being singled out for assistance when other sectors are also feeling pain from the trade war. Two Republicans, Lisa Murkowski of Alaska and Susan Collins of Maine, say fishermen in their states are also dependent on the Chinese market and deserve a bailout. House Democrats are preparing legislation that would do just that.

More broadly, many parts of the U.S. economy face exposure to higher costs and lower revenues thanks to the trade war. Companies that use steel and aluminum face higher costs.

Many manufacturing firms now have to pay more for Chinese goods they use to turn out finished products. The scope of that damage will only grow if the Trump administration pulls the trigger on additional tariffs on a further $200 billion worth of Chinese imports, the U.S. Chamber of Commerce warned. Bailing out all the bits of the economy hit by the fallout could cost almost $40 billion, dwarfing the estimated damage done to the farm belt.

And the farm aid doesn’t just carry political risks. Under World Trade Organization rules, countries have limits on how much aid they can offer agriculture. Broadly speaking, the United States can offer about $19 billion a year of subsidy-like supports without getting in trouble. On paper, the way the assistance is calculated, even the $12 billion bailout shouldn’t exceed the limit, the U.S. Department of Agriculture (USDA) said last week.

In practice, though, calculating and categorizing different kinds of farm support into acceptable and unacceptable boxes is tricky.

“This is a lot of money, and it’s difficult to try to make it fit into these WTO boxes; there’s some potential to go over,” said Joe Glauber, a former chief economist at the USDA. Plus, other countries could file a challenge if they believe U.S. farm support distorts global markets in any way, a case that might be easier to make.

“One way or another, this will get a lot of attention in Geneva other the next six months,” he said.

The bigger question is what happens to this farm support in years to come if the trade war with China continues. The administration has repeatedly described the assistance as a one-time aid to cushion farmers who made planting decisions before China decided to retaliate, and insisted that it won’t be needed next year. Eighty-odd years of U.S. farm policy suggest otherwise.

“In agriculture, temporary payment programs have a habit of becoming permanent,” said Bakst, the Heritage analyst.

With China—the world’s largest market for soybeans—now looking to Brazil for the crop, American soybean farmers fear they may lose the lucrative Chinese export market forever. That matters for the next 10 years, because China’s appetite for agricultural products is only expected to grow. While U.S. farmers might be able to sell additional goods to Europe, nothing compares to the size and growth potential of the Chinese agricultural market: the one commodity sector in which the United States runs a goods trade surplus with Beijing.

“Even if relations with China normalize, Brazil will have sought to meet those needs, and that will add weight to their competitive position,” said Glauber, the former USDA economist. “That’s the real loss for U.S. farmers, and that’s what really scares me.”

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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