Trump's emergency aid only temporary remedy

$16.3b to help farmers affected by retaliation by trade partners against US tariffs may have negative side effects

US President Donald Trump speaking at the US Steel Corp Granite City Works facility in Granite City, Illinois, last Thursday. According to the Associated Press, he trumpeted the renewed success of the steel mill, pushing back against criticism of his escalating trade disputes. PHOTO: BLOOMBERG

NEW YORK • For United States farmers affected by the trade war unleashed by President Donald Trump, the US$12 billion (S$16.3 billion) in emergency aid from his administration is a temporary remedy, and it comes with several potential negative side effects.

The Agriculture Department (USDA) announced the aid last Tuesday to help farm producers hurt by retaliation by major trading partners against US tariffs on steel, aluminium and tens of billions of dollars in Chinese products.

USDA said it would use a Depression-era farm support fund to make direct payments to producers of soya beans, sorghum, corn, wheat, cotton, dairy and hogs.

It also intends to purchase excess production of commodities such as fruits, nuts, rice, legumes, beef, pork and milk for distribution to food banks and other nutrition programmes.

The size of the aid programme is "unprecedented", said Mr Joseph Glauber, a former USDA economist now at the International Food Policy Research Institute. But its effectiveness will be limited, he said, and it creates a "moral hazard".

And ironically, depending on the criteria used, some benefits could go to Chinese-owned companies.

"The pork industry is dominated by very large corporations," said agricultural economist at Purdue University Chris Hurt. "The largest hog producer in the US, Smithfield, is owned by a Chinese company."

  • $27b

  • The amount the US government already gives farmers each year through various programmes.

Agriculture Secretary Sonny Perdue said the new aid will not need congressional approval, but the programme drew sharp criticism from many legislators, including Republicans.

National Farmers Union president Roger Johnson said crop prices are falling and farmers' "livelihoods are on the line with every tweet, threat or tariff action that comes from the White House".

Republican Senator Ben Sasse, a frequent Trump critic, said in a statement: "This administration's tariffs and bailouts aren't going to make America great again, they're just going to make it 1929 again."

But after the US economy grew 4.1 per cent in the second quarter, and the European Union agreed to a ceasefire in the trade confrontation with the US, Mr Trump declared it a victory for his tough policies.

In announcing the aid for farmers, Mr Perdue acknowledged that US farms were being hurt by what he called "illegal retaliation" to the tune of US$11 billion so far.

Meanwhile, analysts say that other industries caught up in the trade war may now expect relief from the government.

"Knowing this administration, they'll design a bailout to help only massive agro-businesses who will use the money for stock buybacks," said senior Democratic Senator Chuck Schumer. "And where does the bailout stop? What about people who use steel and aluminium? What about other goods that have been targeted by our foreign competitors?"

US farmers already receive about US$20 billion a year from the government through various programmes.

But the new aid "creates a bit of a moral hazard," Mr Glauber told Agence France-Presse. "If you compensate producers right now, there is no real urgency to resolve trade disputes for the farmers."

And the longer-term loss of markets for American crops is far worse that the short-term financial hit, he said.

Farmers want trade not "a Band-Aid on a broken leg".

China currently buys a third of US soya beans, and while importers stockpiled them in the two months before punitive tariffs hit this month, they likely will turn to Brazil to buy what they need, and it may be hard to win back market share.


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A version of this article appeared in the print edition of The Straits Times on July 30, 2018, with the headline Trump's emergency aid only temporary remedy. Subscribe