Effective July 6th, the governments of the United States and China ratcheted up their trade disputes, with each country imposing $34 billion worth of tariffs on each other’s exports in nearly simultaneous fashion. As anticipated, China’s tariffs are heavily focused on agricultural products, with the government of China explicitly targeting products produced in U.S. regions and states that were supportive of the President in the 2016 elections. Other countries, such as Mexico, Canada, and the EU have also imposed retaliatory tariffs on U.S. agricultural products over the last few months.
President Trump has raised expectations that the U.S. Government would step in to provide assistance to mitigate the harm caused to American farmers by their loss of a major market. Secretary of Agriculture Sonny Perdue has provided repeated public assurances over the last few months that USDA is working to develop such a plan, including in an op-Ed published in USA Today on June 25th, although he did not provide any details in those comments.
Despite USDA’s previously stated reluctance to disclose their plans before the full impact of imposed tariffs could be gauged, President Trump apparently ordered the Secretary to make an announcement on July 24th about their plan to utilize existing authorities of USDA to provide this assistance. This decision was clearly a response to nervousness on the part of farm state Republicans that the adverse impact from the various retaliatory tariffs (primarily China but also Mexico, the EU, and Canada) might have on farmers’ voting preferences in the upcoming midterm election. President Trump was also scheduled to visit both Iowa and Illinois later in the week, which likely also factored into the early announcement.
The USDA announcement included three components of assistance to farmers, estimated to total $12 billion once the payments are distributed later this year. Two of the components are being provided based on the authority the Secretary possesses from the Commodity Credit Corporation (CCC) Charter Act--Passed in 1948, this authority has primarily been used over its history to acquire commodities when stocks are excessive, causing prices to drop. Section 5 of the Act does allow the Corporation to “(a) Support the prices of agricultural commodities (other than tobacco) through loans, purchases, payments, and other operations.” This authority will be used to provide direct payments to producers of program crops such as corn, wheat, soybeans, and rice, as well as dairy and hog producers. No details have been provided as to how payment levels to individual farmers will be calculated, although we do know that the program will be delivered by USDA’s Farm Service Agency (FSA).
In addition, USDA announced that it would draw on additional CCC funds to promote U.S. agricultural exports. It is not clear whether these funds will be used to establish a new program or will supplement mandatory funding for existing trade promotion programs such as the Market Access Program (MAP) and the Foreign Market Development Program (FMDP), both of which provide matching funds to U.S. trade and commodity groups to promote their products in overseas markets.
The third component of the package will use CCC Charter Act authority and ‘other authorities’, to purchase U.S. commodities for use in domestic nutrition programs such as through the Emergency Food Assistance Program (TEFAP), which distributes food through food banks and soup kitchens. Those ‘other authorities’ likely include Section 32 of the Act of Aug. 24, 1935--This law gives the Secretary of Agriculture the authority to “reestablish farmers’ purchasing power by purchasing products for distribution in non-market channels both in the U.S. and abroad.
While the announcement mentions an overall cost of the package, i.e., $12 billion, it provides no details as to how that amount will be divided between the three components. The USDA announcement references an $11 billion figure as their estimate of the impact of the ‘unjustified trade retaliations’, but again provides no details about how that figure was arrived at, including how long they are assuming these retaliatory tariffs will remain in place.
Most of the leaders of the major farm and commodity organizations whose farmer members will receive this assistance have welcomed the Secretary’s announcement, but notably most still emphasize the need to quickly restore normal access to key export markets like China and Mexico. A number of conservative organizations and conservative members of Congress have decried this announcement--a Heritage Foundation economist referred to the U.S. decision to impose tariffs that precipitated these retaliations as ‘bad policy’, and asserts that ‘bad policy doesn’t justify more bad policy, yet this is exactly what has happened.’
The size of this package may run afoul of the U.S. commitment under the World Trade Organization (WTO) to cap its spending on so-called trade distorting domestic agriculture support. This level is set at $19.1 billion annually, and a potential violation of that cap may occur, depending on how USDA reports this new spending in addition to commodity program payments already committed to under the existing farm bill. It is very likely that the governments of several of our major agricultural export competitors are already evaluating the information provided in this announcement, and contemplating filing a WTO dispute settlement case, depending on the final details on the various components due to be provided by USDA later this fall.