Stung by Tariffs, Farmers Seek Bailouts and More Protectionism
They say that government policies never really fail; they just haven’t been tried hard enough.
Libertarians know that’s far from the truth, of course, but it’s a cliche because it does reveal something about the way policymakers tend to view their pet projects. Bad policy begets bad policy in pursuit of ends that are always one step away—all we need is one more tweak, one more adjustment to correct an unintended consequence, one more intrusion into the marketplace.
So it has been with President Donald Trump’s trade war. Last year, the president authorized $12 billion in emergency spending through a New Deal-era crop insurance program to subsidize some farmers against losses they accumulated after China slapped retaliatory tariffs on American agricultural goods.
Now, with China hitting back against Trump’s latest escalation of the trade war by imposing more tariffs on American farm goods, the White House is preparing to double down on those bailouts—effectively paying farmers to grow crops they won’t be able to sell with money generated from higher taxes on those same farmers (and all other Americans). And the increased interest in economic protectionism has created an opportunity for farm lobbyists to potentially score a somewhat unrelated victory by pushing for higher tariffs on Mexican produce.
On Friday, Trump ordered an increase in tariffs on $200 billion in Chinese imports, from 10 percent to 25 percent. Another $325 billion in Chinese imports could be subject to tariffs within weeks unless a trade deal is struck with China—an outcome that seems unlikely at the moment. On Monday, China retaliated by imposing tariffs on $60 billion of American imports, as well as hiking tariffs on farm products.
“This can’t go on for an extended period of time. We need a trade deal done soon, and in the meantime, farmers are probably going to need another round of aid payments,” Grant Kimberley, director of market development at the Iowa Soybean Association, told CNN.
On Monday, Trump promised to redistribute $15 billion in tariff revenue to farmers.
Those bailouts are a poor substitute for letting farmers have access to foreign markets. For one, that’s because government handouts are rarely handled in an efficient way. Indeed, last year’s $12 billion tariff bailout turned into a predictable mess, with hundreds of people living in big cities getting checks meant for farmers, according to one agricultural policy watchdog group.
While government bailouts might save farmers from some short-term pain, the trade war is doing other damage that can’t be easily rectified.
“The soybean market in China took us more than 40 years to build, and as this confrontation continues, it will become increasingly difficult to recover,” said Davie Stephens, a Kentucky-based farmer, and president of the American Soybean Association, in a statement. “What that means for soybean growers is that we’re losing. Losing a valuable market, losing stable pricing, losing an opportunity to support our families and our communities.”
Soybeans are particularly hard-hit by the ongoing trade war. About half the soybeans grown in America are exported, and the vast majority of the exports used to go to China. With China cutting off American soybean imports late last year, the market for the crop has crashed amid a huge surplus. Soybean futures dropped to their lowest levels in a decade on Monday, The Washington Post reported.
Still, perhaps the best indicator of how bad trade policy is encouraging more of the same is the fact that farming lobbyists are now asking for more protection from foreign agricultural goods, even as the same industry is pushing the Trump administration to end the trade war with China.
“President Trump’s drive to raise tariffs on imports has shifted money from the pockets of consumers to the profits of producers in the manufacturing sector—notably steel, aluminum, and autos,” write Gary Clyde Hufbauer, and Euijin Jung, researchers at the Peterson Institute for International Economics, a trade policy think tank. “These actions have now inspired farm state lawmakers, in alliance with local agricultural producers, to seek their own barriers, raising the price of tomatoes, bell peppers, blueberries, and other produce.”
They point to two things. First, the Trump administration’s decision last week to end a decades-long deal with Mexico that effectively raised tariffs on imported tomatoes. As I wrote last week, this means that the juicy red fruits coming across the southern border will now be subject to a 17.5 percent tariff. More than half of all tomatoes consumed by Americans come from Mexico, and the new tariffs could result in a price increase of as much as 85 percent, according to an analysis from Arizona State University. These changes will also jeopardize jobs in Arizona in order to protect farmers in Florida.
Second, there’s a bipartisan proposal from Sens. Bill Nelson (D–Fla.) and Marco Rubio (R–Fla.) that would allow the executive branch to impose new import duties on Mexican-grown blueberries, bell peppers, and other produce if American growers complain about unfair competition.
“It would enable growers in a single region of, for example, Georgia or Florida, to raise national prices of bell peppers, blueberries, tomatoes, and other produce at a moment’s notice,” the PIIE analysts warn.
The rolling back of the free trade consensus in Washington is a sea change that goes well beyond the tariffs Trump has imposed on China, Europe, Canada, and elsewhere. Unfortunately, as this week has demonstrated, opposition to tariffs does not always translate into advocacy for free trade—but can easily morph into an argument for more protectionism, provided it’s the right kind of protectionism.
There is no such thing, but as long as the president is determined to use trade policy to pick winners and losers, every industry has an incentive to try to be on the side of the winners.
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