On Monday, USDA released payment rates for the Market Facilitation portion of its three-pronged tariff aid package. Soybeans and hogs are the clear winners when it comes to dollars per commodity. How did USDA determine the payment rates? In short, a computer model that isolates and quantifies tariff related market pressure.
“First, I want to reiterate what the Secretary said that illegal, retaliatory tariffs could not have come at a worse time for the U.S. farm economy,” USDA’s Chief Economist Rob Johannson said during a press call on Monday. “As the Secretary mentioned, farm income is down about more than 50% since 2012 in real terms. The 2018 forecast is down again from last year. And in real terms our estimate for net farm income over the next 10 years is expected to continue to decline. On top of that these trade illegal trade tariffs will continue to hamper the ability of us farm income to recover.”
According to Johannson, USDA knew that a relief program would be essential to help farmers survive retaliatory tariffs piled on top of the already struggling farm economy.
“USDA estimates that the current impact of tariffs could be up to $12 billion,” he explained. “That's defined as the value of U.S. export loss due to these tariffs. The trade damage does reflect adjustment farmers will face due to the trade disruption. Is this a price effect? No, it's not a price effect. But it does represent the trade damages we could expect from those retaliation.”
He says the rates announced today reflect the amount the U.S. would take to the WTO to claim in a damages case. Here’s exactly how USDA arrived at today’s rates:
“USDA employed standard trade models developed by academics to estimate the impact of tariffs. The models simulate the expected reduction in U.S. exports due to retaliatory tariffs, holding all other factors constant. We do not include trade problems the U.S. has had with these other countries prior to the 232 and 301 actions,” Johannson explained. “For example, we know that U.S. corn exports to China have been adversely affected by China's unfair subsidies and Q administrative barriers and U.S. is using other message through the WTO as a dispute settlement process to address those unfair practices and improve market access for U.S. corn. So, the trade mitigation programs that we're going to be talking about today are focusing solely on the 232 and 301 retaliatory actions that we've seen.”
While, it might seem the payment rates do not accurately reflect how much the markets have fallen over the past several months, USDA says the intention of the program is to provide aid from pain felt as a result of retaliatory tariffs, not other market factors.