At Thursday’s U.S. presidential debate, President Donald Trump falsely claimed in an exchange with rival Joe Biden that China is paying American farm subsidies.
“I just gave $28 billion to our farmers,” Trump said.
“[That’s] taxpayers’ money,” Biden, the Democratic nominee, interjected. “[The money] didn’t come from China.”
Trump objected: “No, no. You know who the taxpayer is? It’s called China. China pays $28 billion, and you know what they did to pay it, Joe? They devalued their currency, and they also paid up, and you know [who] got the money? Our farmers, our great farmers, because they were targeted.”
Subscribe to Eastworld for weekly insight on what’s dominating business in Asia, delivered free to your inbox.
Trump’s claim that China paid for American farm subsidies is false, given that the U.S. has drawn from its own government coffers to pay for subsidies to bolster farmers hurt by the U.S.-China trade war. It is also unclear how his claims of China “paying up” or “devaluing its currency” relate to U.S. government subsidies to American farmers.
Trump’s January phase 1 trade deal with China—a first step in resolving the yearslong trade war—included a vow from China to vastly increase its purchases of American farm goods. Such action would have benefited U.S. farmers, but as of now, China is far behind on meeting its targets.
Farm relief
The trade war began in July 2018, when the Trump administration levied $34 billion in tariffs on Chinese goods, meaning it cost more for American companies to import products from China. In response, China imposed a 25% tariff on U.S. soybeans and other agricultural products, meaning American goods became more expensive for Chinese importers. Subsequent rounds of tit-for-tat measures followed, which raised China’s tariffs on soybeans to as high as 33%; Chinese tariffs on U.S. pork products reached 72%.
Trump often claims that China paid the tariffs his administration imposed on Chinese goods. It’s true that the U.S. Treasury has collected billions of dollars in tariffs in recent years, but that money is paid by U.S. importers of Chinese goods, not by Chinese entities or China itself.
In reality, tariffs are intended to be a deterrent. Those imposed by the Trump White House made it more expensive for American companies to buy Chinese items; the idea being that American companies would import fewer Chinese goods if the products became more expensive, which would ultimately hurt China. American companies did seek out alternatives to Chinese products after the tariffs went into effect, but they also responded by raising their prices to cover the added cost and by cutting other expenses, like jobs. In June 2019 alone, a group of trade associations found that Chinese tariffs cost U.S. businesses $3.4 billion. By the time of the trade deal in January 2020, Trump administration tariffs had cost U.S. companies tens of billions of dollars.
The $28 billion figure that Trump mentioned on Thursday appears to refer to the $28 billion in subsidies the United States Department of Agriculture (USDA) allotted to American farmers between 2018 and 2019. The USDA rolled out the subsidy mechanism, called a Market Facilitation Program, in 2018 to provide relief to farmers whose crops had been targeted by China’s retaliatory trade war tariffs.
Just as U.S. tariffs on Chinese goods made the items more expensive in the U.S., China’s retaliatory tariffs on U.S. goods made American products more expensive in China. And in this instance too, the added cost was a deterrent. Instead of importing, say, soybeans from the U.S., Chinese companies imported them from other countries, such as Brazil. That was bad news for U.S. soybean farmers, who exported roughly 25% of their harvest to China in 2017, before the trade war began.
The tariffs led to a precipitous drop in U.S. soybean exports to China. From 2017 to 2018, they fell 70%.
It is not clear how Trump came to the conclusion that China footed the $28 billion bill for farmer subsidies. The payments were the handiwork of the USDA’s Commodity Credit Corporation, an agency that is authorized to borrow from the U.S. Treasury to stabilize America’s farm economy.
“President Trump has great affection for America’s farmers and ranchers. He knows that they’re fighting the fight and that they’re on the front lines,” Agriculture Secretary Sonny Perdue told reporters in 2018.
Farmers are viewed as a core constituency in Trump’s electoral base, and the President continues to hold commanding leads over Biden in 2020 polls of American farmers.
Observers have criticized Trump for using the little-known USDA mechanism to shield his administration from the negative political consequences of the trade war, without having to put the measure before federal lawmakers.
“What’s unique about this is, [the subsidies] didn’t go through Congress,” Joe Glauber, the USDA’s former chief economist, told NPR in December 2019. “The sector that is hurt the most [agriculture], and which would normally complain, all of a sudden, it’s assuaged by these payments.”
The Trump administration’s approach has caught the attention of the U.S. Government Accountability Office, the U.S.’s watchdog agency. It’s investigating whether the payments were disproportionately distributed to large corporations or to places that supported Trump in the 2016 election.
Trade deal
The trade deal that the Trump administration signed with Beijing in January of this year holds China to new purchasing targets in exchange for the lowering of tariffs. Officially, Chinese tariffs on U.S. goods remained in place, but in practice China granted tariff-free waivers on goods like pork and soybeans to Chinese importers.
As part of the deal, China agreed to purchase $36.6 billion worth of agricultural goods, a $12.5 billion increase from pre–trade war levels in 2017. On paper, that action by China provides real relief to American farmers. But through August, China had only purchased $11 billion worth of agricultural products, less than half of what it needed to buy to be on track to meet the conditions of the trade deal.
Meanwhile, from 2018 to 2020 U.S. farmers relied more heavily on U.S. government support. The share of income they receive from the U.S. government, as opposed to what they receive from selling their crops, has steadily increased in the past three years. So far in 2020, 40% of farmers’ net cash income has come from government subsidies, the highest percentage in two decades.
