Farmers have been among the many hurt by the ongoing trade war, and they are not a constituency the Republican party wants to lose. Rather than adjust his trade policy accordingly, however, President Trump has decided on another remedy: to pay farmers $12 billion in the form of direct payments, subsidies, and other market interventions. Announced Tuesday, this plan demonstrates how poorly the president’s protectionist campaign is going and reinforces the need to change course.
The $12 billion would be paid out by the Commodity Credit Corporation, a subdivision of the U.S. Department of Agriculture that was created in 1933 via executive order and has since been codified by a statute allowing the USDA to borrow up to $30 billion to “stabilize, support, and protect farm income and prices.” As a general matter, we dislike programs that allow the executive to intervene in the economy during emergencies. This case is made worse by the fact that the “emergency” was created by the executive.
There is no doubt that American farmers have lost money lately. These costs, however, are consequences of the president’s trade policy. Take soybean farmers, who have been devastated by Chinese tariffs and a collapse in commodity prices in recent weeks. The turmoil in the soybean markets did not begin until after the U.S. trade representative conducted a Section 301 investigation into Chinese trade practices, found that they violated international rules, and levied $34 billion in tariffs on Chinese goods. In response, China imposed retaliatory tariffs, including on soybeans (White House trade adviser Peter Navarro had predicted that no retaliation would ensue). Now American soybeans are no longer competitive abroad and supply has built up domestically, driving prices, and profits, down for producers. The story is similar with beef, pork, and sorghum farmers, among others, all of whom Trump has promised to bail out.
We are right to push the Chinese to end their misbehavior, but the administration’s course is not the way to do it. The reasons should by now be pellucid. While the U.S. has indiscriminately imposed tariffs on intermediate and capital goods — often raising costs for American manufacturers in the process — foreign countries have shrewdly targeted consumer goods and commodities that will cause political problems for Republicans. And if Trump’s goal is to solve the problems in the agricultural economy, this bailout is insufficient: Many businesses that rely on the farm economy but do not grow crops themselves will not see any benefits, and the payments will lead to further market distortions as the government artificially drives up demand. Regardless, the president has resorted to cut-rate dirigisme in service of nakedly political goals, a sign that he is being out-maneuvered.
The superior policy is to shift course and work with our allies to isolate China, beginning with joining the Trans-Pacific Partnership, and to use rifle-shot interventions against Chinese cheating, particularly intellectual-property theft, that don’t have the same potential to backfire as sweeping tariffs. Though President Trump does not seem likely to reconsider his approach any time soon, Republican congressmen were swift to condemn this latest proposal. A critical mass of the congressional GOP still believes in the value of free trade. They have the power to put that belief to use.
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