Home Markets The Art of Escalation—A $12 Billion Deal for Farmers!

The Art of Escalation—A $12 Billion Deal for Farmers!

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It’s official. The trade wars of 2018 have turned into a bailout.

This week, President Donald Trump announced he would allocate $12 billion in emergency rescue money to farmers who are seeing their markets dry up and farm prices disintegrate.

Farm states that voted for Trump in the Midwest and South have been hit especially hard by retaliatory levies that the EU, Canada, and China have imposed in response to Trump’s initial round of tariffs on goods like steel, aluminum, and Canadian lumber. China, in particular, has imposed its own tariffs on soybeans, beef and pork.
Those are the products taking the biggest hit so far, but the new aid program is slated for farmers raising soybeans, sorghum, cotton, corn, wheat and pork.

White House officials say the payments will begin in September. That timing, right before the next round of midterm elections, is notable, and not everyone is happy about what they see as a presidential bribe to Trump ’s most loyal backers.

Even some Republicans oppose the idea. Sen. Rand Paul of Kentucky sent his objection out via Twitter: “If tariffs punish farmers, the answer is not welfare for farmers. The answer is to remove the tariffs.”

Another Republican, Sen. Bob Sasse of Nebraska said, “The trade war is cutting the legs out from under farmers and White House’s ‘plan’ is to spend $12 billion on gold crutches. America’s farmers don’t want to be paid to lose — they want to win by feeding the world.”

Sen. Patrick Toomey (R) of Pennsylvania called the $12 billion program a “Band-Aid on a self-inflicted wound.”

But, just as the president was able to unilaterally impose massive tariffs, he can set up this emergency funding without Congressional approval.

Ironically, the aid program comes under the Commodity Credit Corporation, established by Democratic President Franklin Roosevelt during the Great Depression. Conservative groups like the Club for Growth and Heritage Action have opposed CCC as “federal handouts.”

Earlier this month, soybean prices hit a 10-year low. It is impossible to lay the blame on anything except the trade war. With substantial 25% tariffs on soybeans, the Chinese have turned to South America, which can provide plentiful cheaper sources. China and Mexico have also looked for alternative markets for pork products, much to Canadian farmers delight.

Until this year, agriculture has been one of the few American industries to run an annual trade surplus. US farm exports came to $138 billion in 2017. Soybeans accounted for $21.5 billion of that total, making it the country’s most valuable export. Canada, China and Mexico—all of which were hit by Trump’s tariffs—by 43% of US farm goods.

The president’s new aid program is temporary, and many experts think it will have little lasting value in helping farmers. The size is just enough to grab headlines, but probably not enough to outlast the effects of the current trade war.

The length of the trade war is still an unknown. At the beginning of July, Vox surveyed 11 economists and trade experts on the question. None believed this would end soon, but more important nearly all of them pointed to the same fatal flaw. Trump imposed tariffs without explaining what he wanted in return.

During the 1980s, for instance, the US slapped 100% tariffs on Japanese semiconductors. In return for lifting the tariff, the government demanded—and got—access to 20% of Japan’s market. End of problem. Nothing this clear exists in the Trump Trade War.

In addition to the question of how long farmers will actually need help, size is an issue. The $12 billion bailout may be higher on symbolism than real help to farmers because it is actually a very small amount within a large industry that has just been broadsided. In 2012, President Obama’s program to help farms devastated by severe drought cost $170 billion.

In the meantime, the stock market has not stumbled. Whatever farmers are feeling, investors aren’t worried yet.