Why Donald Trump’s record-breaking trade aid for farmers could fail
Efforts by past US presidents to manipulate global trade have ended up boosting farmers in other countries at the expense of US agriculture
This story is published in a content partnership with POLITICO. It was originally reported by Catherine Boudreau on politico.com July 25, 2018.
US President Donald Trump’s $12 billion relief plan for farmers may be the largest US government effort in recent memory to help rural America cope with an entirely man-made disaster. And it could backfire in the long run.
The government will pay some farmers directly and buy food from others to blunt the impact of a trade war entirely of the president’s own making. Despite the massive size, it won’t offset the sweeping damage to markets as other countries slap penalties on US farm goods in retaliation to Trump’s tariffs on imports.
And ultimately, efforts by past presidents to manipulate global trade have ended up boosting farmers in other countries at the expense of US agriculture, no matter how much the federal government spends to buoy local markets.
The Nixon administration in 1973 embargoed exports of soybeans and cottonseed to shield US meat producers from skyrocketing costs for feed. And former President Jimmy Carter in 1980 blocked US grain exports to the Soviet Union to punish the country for its military occupation in Afghanistan.
These actions were a “stimulus to US competitors” like Brazil, now a top exporter of soybeans, which increased agricultural production to meet the demand American farmers couldn’t fill, said Scott Irwin, an agricultural economist at University of Illinois.
“Based on a couple historical episodes, farmers’ biggest fear is this could put the United States in category of an unreliable supplier,” Irwin said.
Dan Glickman, who served as Agriculture secretary during the Clinton administration, also pointed to the hard lessons of the grain embargo against the Soviet Union.
“It took a long time to get our markets back,” said Glickman, now a fellow at the Bipartisan Policy Centre and the Chicago Council.
“The assistance will certainly help some,” he said.
“But really it’s a self-inflicted wound and we’re trying to make the best of it. I think they’re not going to make a lot of friends in this process.”
The USDA has a long history of helping farmers stay afloat during droughts and crop failures and unpredictable market swings, both through farm bill programmes and its broad authority to stabilise agricultural income under a Depression-era law known as the Commodity Credit Corporation Charter Act.
Economists said the $12 billion package announced by the Trump administration on Tuesday, which falls under the department's CCC authorities, dwarfs any emergency relief for farmers in recent memory and is an unprecedented rationale for tapping into the CCC account.
“It’s unprecedented in the context of being a one-time assistance related to trade issues,” Irwin said. “To the best of my recollection, we’ve never had a programme of this size to specifically offset retaliatory tariffs.”
Joel Glauber, a former USDA chief economist who is now a senior research fellow at the International Food Policy Research Institute, said he couldn’t recall any emergency assistance packages larger than $12 billion during his 30 years at the department.
USDA supplied roughly half that amount after a 1998 financial crisis in Southeast Asia that slowed agricultural exports and crippled prices, he said.
Farmers and ranchers, for their part, have pleaded with the Trump administration to adopt a different strategy on trade that doesn’t further escalate the tit-for-tat tariff disputes, echoing economists’ concerns about the deterioration of trade relationships they’ve long worked to establish.
Producers from Illinois, California and North Dakota told POLITICO the $12 billion package is an overdue acknowledgement from the Trump administration that the trade battles with China, Mexico, Canada and other major economies is inflicting real damage to their bottom lines.
While farmers would rather get their money by selling their products on the free market, the president’s trade agenda has been out of their control, they said.
Still, it won’t be enough to compensate for what appears to be a prolonged and aggressive effort by Trump to rebalance America’s trade relationships.
Between commodity supports, which guarantee certain prices and revenue for row-crop farmers, and subsidised crop insurance premiums, the USDA spends about $13 billion a year. Several farmers said these programmes don’t offer widespread protection, particularly for livestock and speciality crop producers.
And after five years of falling commodity prices, which have cut US farm income in half to about $60 billion, the farm bill safety net isn’t enough to get producers through a trade war.
“I think it’s great that dollars are available, but it feels like a Band-Aid on a big, ugly wound,” said Stuart Woolf, who owns a farming and food processing operation in California’s Central Valley that grows almonds, pistachios, walnuts and other speciality crops.
“I can’t believe [it] will be big enough.”
Woolf pointed out that the direct payments USDA is planning to deploy, which will account for the largest portion of the aid package, won’t benefit his business. That support is targeted to commodities including soybeans, sorghum, corn, wheat, cotton, pork and dairy.
To help speciality crop growers like Woolf, the USDA instead plans to purchase fruit and nuts, as well as rice, beef, pork and dairy products, and redistribute them to federal nutrition assistance programmes. The department will also put resources into finding new markets for US farm goods overseas.
“We’ve put a lot of time, effort and energy into building markets like China,” Woolf said.
“We’re constantly trying to build trust with our strategic partners. With this administration, there doesn’t seem to be any strategic partners.”
Woolf said tree nut growers are starting to feel the effects of retaliatory tariffs by China, now that the 2018 marketing season is underway.
For example, US almond and pistachio producers aren’t seeing the level of Chinese buyers they had a year ago. Almonds are the top US nut export to China, which bought $99 million worth last year, according to USDA.
Brian Duncan, who raises hogs and cattle and grows row crops in Ogle County, Illinois, and is vice-president of the state’s Farm Bureau, said the Trump administration's $12 billion aid package is a recognition of the “economic upheaval” producers have experienced.
At the same time, it won’t make farmers whole. Soybean prices have sunk by $2 a bushel, while hog futures have dropped by as much as $18 a head since tariff threats began this spring, Duncan said. Multiply that by the billions of bushels of soybeans and hogs American producers sell each year, and it signals the significant costs.
“I don’t think tariffs should have been a first resort, rather a last resort,” Duncan said.
“We now have short-term realities we’re dealing with, which were brought on us through no fault of our own. The economic damage if this is allowed to go on for years would be counted in the hundreds of billions, I’m afraid.”
Helena Bottemiller Evich contributed to this report.