The United States could tarnish its leadership for fair trade in agriculture because of its multibillion-dollar trade-war payments to farmers, said a report issued by the free market American Enterprise Institute on Tuesday. Author Joe Glauber, former USDA chief economist, said the Market Facilitation Program (MFP) payments could breach WTO limits against trade-distorting subsidies.
“Now the shoe could be on the other foot,” wrote Glauber. Early this year, the United States won a WTO complaint against China for paying excessive subsidies to its corn, wheat and rice growers. China agreed to reform its policies by March 2020. The situation could be reversed if U.S. subsidies exceed its WTO limit of $19.1 billion a year. Questions already are being heard at the WTO.
“An adverse ruling could lead to compensatory actions,” said Glauber, who is experienced in WTO matters. “It would also further erode the United States’ leadership role in seeking further reforms in domestic subsidies and increased market access in the WTO. Given that the United States is a major exporter of agricultural commodities, this could hurt the U.S. farm sector.”
Under WTO scorekeeping, the United States uses $5 billion or so of its $19.1 billion limit to offset the effects of programs that limit competition by foreign producers, such as sugar. “At more than $15 billion, the 2019 (MFP) package could push the United States over its limits, potentially prompting WTO members to challenge US support programs, and if successful, seek damages or other trade concessions,” said Glauber.
An important question will be whether the Trump administration is compensating for losses or over-paying them. “Recent empirical studies…have reported far smaller effects on U.S. markets and producers” than USDA used in calculating payments, wrote Glauber. For instance, the USDA said the trade war reduced soybean prices by $1.65 a bushel but four analyses put the impact at a much lower level, from as low as 36 cents a bushel to as much as $1.09.
Speaking separately, the chairman of the Farm Credit Administration said that net cash farm income this year “will likely be close to the average for the past two decades,” thanks to MFP payments. Chairman Glen Smith said the trade-war payments also are a bolster of farmland values. Land is fourth-fifths of farm assets.
“The combination of farm commodity programs, disaster assistance, crop and livestock revenue insurance programs, and the 2018 and 2019 Market Facilitation Program payments puts a floor under farm income and helps stave off a potential collapse,” said Smith.
The AEI report, Agricultural Trade Aid, is available here.