Trump trade war had ‘winners and losers’
When Trump appointees at the USDA parceled out trade war assistance to farmers, they exaggerated the damage in 2019 and overcompensated corn and wheat growers — corn by $3 billion, said a congressional agency on Monday.
“This report confirms that the Trump USDA picked winners and losers in their trade programs and left everyone else behind,” said Senate Agriculture chairwoman Debbie Stabenow, a Michigan Democrat.
Farmers and ranchers received a total of $23 billion in trade war payments for losses in exports in 2018 and 2019.
In its report, the Government Accountability Office said the USDA used a “justifiable” baseline for 2018, but it used export values that were “inappropriately high” and resulted in a larger payout. The money was funneled through the Market Facilitation Program (MFP), created at President Trump’s direction.
“In total, we estimated that the 2019 MFP’s total payments for corn nationwide amounted to approximately $3 billion more than if USDA had paid producers at a commodity rate calculated on the basis of total trade damages, as it did for the 2018 MFP,” said the GAO. “Payments for wheat were also higher. In contrast, payments for soybeans, sorghum, and cotton were lower than if USDA had used its 2018 MFP payment methodology.”
For 2018, the USDA based MFP payments on the expected decline in export revenue for major commodities from 2017 because of retaliatory tariffs, said the GAO. For 2019, the USDA picked the highest annual sales total from the preceding decade for each commodity and used that to calculate losses. As an example, the GAO said the USDA pegged the loss in wheat sales to China at $836 million in 2019, more than double its imports of wheat in 2017, just before the trade war, and three times larger than its figure for 2018 losses.
Nor did the USDA adjust its figures for lost exports to markets, such as China and the European Union, to reflect gains in sales to other customers, said the GAO.
“When Trump administration officials created the Market Facilitation Program … they built the program on a specific formula they selected, which favored certain regions, certain crops, and large operations. It doesn’t require much speculation to suss out their motivations,” said a Biden administration official.
Eight states in the Midwest and Plains — Iowa, North Dakota, Nebraska, Kansas, South Dakota, Arkansas, Minnesota, and Montana — were net winners from the 2019 MFP payments, wrote three Iowa State University economists in early 2020. “It also is interesting to note that while most of the ‘winner’ states are red states that voted for President Trump in the 2016 election, the net welfare effect for key battleground ‘purple’ states, such as Michigan, Ohio, Wisconsin, and Pennsylvania, remain(s) negative.”
The USDA applied a county payment rate, reflecting each county’s usual share of ag exports, in distributing the 2019 aid. The approach “resulted in different payment rates for producers of the same nonspecialty (row) crop in different counties,” said the GAO. The highest payment rates were in counties where farmers grew high-value crops.
“Crop payment rates were generally higher in the South because of the South’s higher proportion of cotton, sorghum, and soybeans, which had higher trade damages per acre,” said the GAO. Corn yields are highest in the Midwest and West, but GAO estimated corn producers received $69 an acre in the South, $61 an acre in the Midwest, $34 in the Northeast, and $29 in the West.
The large payments also could breach U.S. commitments to free trade, wrote Joe Glauber of the IFPRI think tank in a 2020 paper. “While those payments will help the sector in the short term, the aid payments could well prolong problems for the sector beyond 2020 by exacerbating trade tensions and precipitating future WTO disputes.”
The GAO report, “USDA Market Facilitation Program,” is available here.
A summary is available here.