With much of the world still reeling from the outbreak of COVID-19 and justifiable outrage over the death of George Floyd, an under-the-radar but troubling report details how recent farm subsidies are being distributed wastefully.

The study found that in 2019, subsidies to cotton farmers were up to 33 times more than the actual loss in sales suffered due to foreign retaliation to President Trump’s tariffs. In 2018, farmers had already been paid up to 8 times more than their trade losses.

Another study from the Environmental Working Group found that large, wealthy agribusinesses received the most money from trade mitigation payments. The New York Times recently highlighted how DeLine Farms Partnership in Missouri was able to “collect more than $2.8 million in trade relief payments in two years,” well above the cap of $250,000 per recipient, using a loophole in the law.

In 2018, the Trump administration imposed tariffs on imported steel and aluminum from virtually every country in the world and began its aggressive, unilateral trade war with China over the country’s handling of intellectual property, technology transfer, theft of trade secrets, cyberattacks, and other issues. Although concerns about China’s trade practices are justified, the president’s tariffs have hurt the American economy. The average tariff on imports from China is now 19.3%, between 6 and 7 times higher than in 2017, the last year before the trade war began.

No matter how many times the president says that Chinese exporters are paying the tariffs, it is simply not true. Numerous studies have confirmed that Americans are paying the tariffs. In particular, a recent study from the New York Federal Reserve found that American firms lost nearly $2 trillion in market capitalization as a result of the investment slowdown brought on by the trade war with China.

Our trading partners’ responses were entirely predictable: They targeted American exports, particularly agriculture products, for heavy retaliation and sales plummeted. Families suffered, farm bankruptcies soared, and suicides in farm communities spiked. To mitigate the damage from declining foreign sales, the Trump administration devised an expensive scheme to pay farmers and ranchers. It dusted off a Depression-era program, the Commodity Credit Corporation, to make nearly $30 billion worth of payments to farmers in 2018 and 2019. These subsidies are potentially trade-distorting and could violate U.S. commitments at the World Trade Organization, which could trigger a dispute and invite still more foreign tariffs.

As part of the detente signed by the United States and China earlier this year, Beijing promised to resume buying a number of agricultural products. To meet its purchase requirements, though, China is relying heavily on state-owned enterprises, which is exactly the opposite of the U.S. aim of prodding Chinese firms to operate on more market-oriented terms.

There is a better way. The Trump administration should start by repealing all of the tariffs it has imposed since 2018. Our trading partners will remove their retaliatory tariffs in response, and the Commodity Credit Corporation payments can then begin to wind down.

Still, more needs to be done to modernize our extremely expensive farm subsidy regime, which is full of misaligned incentives and costly for taxpayers. It encourages planting on marginal lands, which hurts water quality and damages the environment, and our subsidies are nontariff barriers to trade that prevent the U.S. from making significant inroads into foreign agriculture markets for our farmers and ranchers.

This problem will not disappear on its own, especially if the Trump administration continues to exacerbate the problem. We can and must do better for hardworking farmers and ranchers.

Image credit: Travel mania

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