President Trump, who dubbed himself “a tariff man,” employs a policy of “aggressive unilateralism” that views agriculture’s trade war losses as collateral damage that can be mitigated by a multibillion-dollar bailout, say the authors of a think tank paper on the presidential race. The paper, released on Wednesday, says businessman Michael Bloomberg is “perhaps the strongest supporter of free trade among the various Democratic candidates,” while Sens. Bernie Sanders and Elizabeth Warren “are the most protectionist.”
With his ready use of tariffs and frequent social media saber-rattling, Trump has painted himself as tough, albeit alone, on trade, said economist Joe Glauber, one of the authors of the paper, released by the free-market American Enterprise Institute ahead of the Feb. 3 Iowa caucuses, the first test in the nation of support for 2020 presidential aspirants. “Democrats are more likely to work within the system of international trade rules,” such as filing WTO complaints and building coalitions with other nations to challenge violators of trade pacts.
The Trump administration has sent $19.5 billion in cash to farmers and ranchers since September 2018 to offset the impact of retaliatory tariffs on the agriculture sector. The so-called Market Facilitation Program payments were the largest federal support to agriculture in fiscal 2019, bigger than federally subsidized crop insurance or the traditional farm program. The administration effectively doubled the payment limit to farmers with the MFP, allowing producers to collect $500,000 apiece, compared to the congressionally set limit of $250,000 for crop subsidies. Big farmers have gotten the lion’s share of the Trump tariff payments, which are based on the production of commodities such as soybeans, corn, wheat, hogs, and dairy.
Exports generate 20 cents of each $1 in revenue for farmers. U.S. farm groups have traditionally supported free trade in agriculture.
“For the most part, both the president and most of the Democratic challengers offer policy prescriptions to cater to farm votes in the context of direct farm subsidies,” wrote Glauber, the former USDA chief economist, and economist Vince Smith of Montana State University. They said Trump “over-compensated farmers for any trade losses through MFP.” During a panel discussion at the AEI, Glauber used the phrase “aggressive unilateralism” to describe Trump’s policy.
“President Trump simply views trade policy as a confrontational exercise and impacts on agricultural markets as collateral damage to be mitigated by side payments to farms from taxpayers,” said the authors, referring to Trump’s withdrawal from the Trans-Pacific Partnership, his imposition of tariffs on China and on steel and aluminum imports, and his refusal to allow the appointment of new members of the WTO’s appellate body.
Bloomberg “supports open markets and the principles of free trade,” says the AEI paper. “Sanders and Warren view agriculture in a more insular world, where farm income would be supported not through expanding markets but by restricting agricultural supply as a way of increasing prices paid to small and medium-sized farms.” It goes on to say, “Most of the other Democratic candidates qualify their support for free trade agreements, typically by calling for stronger and somewhat implausible provisions that would require trade partners to implement worker protection and environmental programs.”
Despite the prominent role of Iowa, a top farm state, in opening the presidential selection process, agriculture and rural policy is “less important this election than in any election I have seen in recent years,” said Jerry Hagstrom, editor of The Hagstrom Report on ag issues. Trump is highly popular in rural America because of his socially conservative statements and because he has provided regulatory relief to farmers. The rural race “could become more interesting than we expect now,” said Hagstrom, if China fails to buy significantly more U.S. farm exports under the “phase one” trade agreement, if U.S. dairy exports to Canada fail to increase under the USMCA, if the use of corn ethanol falls below the 15 billion gallons a year promised by the EPA, or if farmers want another year of MFP payments and the administration demurs.
Trump’s trade war payments represent a major shift in approach from years of separating U.S. farm subsidy payments from current production, said economist Barry Goodwin of North Carolina State University. “Decoupled” payments were intended to allow farmers to pursue profits on the free market and to prevent farm subsidies from distorting world trade. By some estimates, the MFP payments could breach WTO limits.
U.S. support of agricultural research is declining, while competitors such as China ramp up their outlays, said Philip Pardey, a University of Minnesota economist. “The long-term structural consequences [are] going to be a diminished productivity advantage” for the United States in world trade, he said.
To read the AEI paper, “The future of U.S. agricultural and rural development: Where do the 2020 presidential candidates stand?,” click here.