The United States is one of the largest agriculture producers in the world. In fact, agriculture is so abundant in the United States farmers and ranchers are able to export about 20 percent of what they produce for foreign consumption. Much of the nation’s dominance in international agriculture markets is due to technological advantages, but all is not well with American agricultural policy.
The last few years have been challenging for America’s farmers and ranchers. In January 2017, President Trump’s first official act was to withdraw the United States from the Trans-Pacific Partnership (TPP), a promising agreement with Pacific Rim nations negotiated by the Obama administration. If implemented, the TPP would have opened up notoriously closed agriculture markets to American farmers and ranchers. A year later, the administration levied “national security” tariffs on imported steel from virtually every country in the world, including long-standing allies. Likewise, the president began a two-year trade war with China over Beijing’s allegedly unfair and burdensome trade policy practices. The consequences of the president’s moves were entirely predictable as foreign retaliation fell heavily on American agriculture and exports fell.
In response, President Trump directed the United States Department of Agriculture (USDA) to provide about $28 billion in additional aid to beleaguered American agriculture producers who saw their foreign market access erode due to retaliatory tariffs. As a result, the USDA dusted off a New Deal-era program, the Commodity Credit Corporation (CCC), to facilitate payments to farmers. Yet, recent research shows that certain politically favored farmers received payments well in excess of their actual losses. Likewise, much of the aid was directed to wealthy, well-connected corporate farms rather than small, needier ones.
In January 2020, the United States and China signed a détente in their ongoing trade war. Among other pledges, the deal requires China to purchase $32 billion worth of agricultural products over the next two years. This was welcome news to farmers and ranchers, but it is unclear what— if anything—the trade war has accomplished. After all, it is unlikely that China will make any structural changes to its economy as the United States demanded. The tariffs have also exacted a heavy toll on the U.S. economy, and no matter how many times the president claims otherwise, American consumers—not Chinese exporters—are paying them. Even after the temporary trade truce with Beijing, the average tariffs on imports from China are between six and seven times higher than when the trade war began. Moreover, a recent study from the New York Federal Reserve found that American firms lost $1.7 trillion in market capitalization from lower investment growth as a result of the trade war. Likewise, in order to meet the purchase targets mandated under the terms of the agreement, Beijing is relying on state-owned enterprises. This is the exact opposite of a stated U.S. goal to nudge Chinese firms to operate on more market-oriented terms.
Now, on the heels of the tit-for-tat between Washington and Beijing, the world is reeling from the outbreak of COVID-19. In mid-March 2020, President Trump and the Centers for Disease Control (CDC) urged Americans to avoid restaurants in response to the pandemic and—not surprisingly—demand for agricultural products plummeted. In response, Congress authorized $14 million more in additional subsidies. Further, a recent study found that in 2020 between 50 and 75 percent of net farm income this year will come from domestic subsidies.
Likewise, The New York Times recently noted: “With food processors unable to shift easily to the right market, farmers have been forced to euthanize tens of thousands of hogs, dump fresh milk into lagoons and plow ripening vegetables into the ground.” Even still, the USDA was slow to respond to COVID-19. Indeed, there is a glut of agriculture that is rotting in warehouses even though demand at food banks has increased by about 70 percent. In an attempt to mitigate this problem, in April the USDA announced a $19 billion package “with $3 billion set aside to buy excess food,” but even then, federal officials acknowledged that such a process would take at least several weeks, meaning that much food would nevertheless be wasted in the meantime.
However, even before the recent shocks to the system, it was obvious that the status quo was broken, particularly our farm subsidy system. Accordingly, the present study will explain the problems with the farm safety net and make policy recommendations to design a more economically and environmentally sustainable subsidy system.
