By William Reinsch
July 25, 2018

On Tuesday, the Trump administration announced a $12 billion relief package for American farmers to compensate them for the damage done by the tariffs President Trump has imposed. The administration is dodging several bullets with how it designed the program, but there is a fundamental irony here: using taxpayers’ money to compensate people for a problem the administration created.

With this program, no additional legislation or Congressional approval is required. It uses existing programs under the umbrella of the Commodity Credit Corporation (CCC), which helps farmers deal with the consequences of crop cycles and unexpected weather disasters. In addition, the program appears to fit within the limitations of U.S. agriculture subsidies maintained by the World Trade Organization, which should forestall litigation there, or at least allow the U.S. to prevail if challenged.

However, this is a distortion of the CCC’s purpose. It also appears that if all $12 billion is spent, it will more than double the CCC’s annual outlay. It would still be within the borrowing ceiling, but could limit funds needed for other purposes, like responding to weather disasters or non-trade-related price declines.

In addition, while the program may survive WTO litigation, it could still face retaliation from foreign countries arguing that the payments are subsidies, which would give our farmers an advantage in the marketplace. That’s a stretch, but the president has already moved the trading system into a world where neither reality nor rules matter, so we should not be surprised when other countries respond in kind.

And let’s not forget that this is a short-term measure to deal with what is likely to be a long-term problem. The program is intended to deal with the current crop year, and there is no intention at this point to extend it. This is probably based on the president’s view that if you hit people hard enough with tariffs, they’ll fold, give him what he wants, and he can remove the tariffs and restore farmers’ overseas markets. But any farmer who exports will tell you that is simply wrong. Foreign markets are painstakingly developed, relationship-based, and, once lost, cannot simply be restored by flicking a switch and turning off the tariffs. The damage done so far is going to last far beyond the current crop year and may well be permanent.

Even if those markets could be restored if the tariffs were removed, there is not much evidence to suggest they’re going away anytime soon. So far, there is not much in the president’s win column on trade. NAFTA talks are stalled; Chinese talks are currently non-existent; and the only negotiation he’s completed—with Korea—may unravel over the threat of additional auto tariffs. That means we are in this for the long haul with likely permanent consequences.

 

Farmers are making clear this is not what they want. They want free trade and open markets. A cynic would say they’ll probably complain and take the money anyway, but they won’t be happy about it, which means the president may not get the political bump he is hoping for.

The irony of this remains inescapable. The president created this problem. The solution to a bad policy is to remove the policy. Instead, he is compounding the error by adding another bad policy on top of the first, and sending the bill to the nation’s taxpayers—a bill that is likely to extend beyond the first year. It also raises, again, the irony of the Republican Party’s position. It has long stood for free trade, free markets, fiscal conservatism, and reduced government spending. Yet here it is supporting a president who has abandoned all those principles. Historians will debate whether the party has lost its mind or its soul—or both.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C. He is also a trade expert on the podcast The Trade Guys.

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