Policy Studies Agriculture

Harvesting Another Trade War: Ad Hoc Farm Subsidies and Our WTO Commitments


Beginning in the 1930s the United States led the global charge toward a rules-based trading system. The goals of this bipartisan policy were: to increase economic growth and promote international peace on the assumption that countries that engage in cross-border trade are less likely to go to war with one another. However, this economic bipartisanship recently came under significant pressure with the election of Donald Trump as president. This is regrettable since trade liberalization, though imperfect, has largely been successful. A 2017 study from the Peterson Institute for International Economics found that globalization has increased “US GDP per capita and GDP per household. . .by $7,015 and $18,131 respectively (both measured in 2016 dollars)” and that “disproportionate gains probably accrue to poorer households.”

Upon taking office, President Trump began to unwind the bipartisan consensus that favored trade liberalization. One of his first acts in office was to withdraw the United States from the Trans-Pacific Partnership (TPP), which was later renamed the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) after the United States backed out.

After withdrawing from the TPP, the Trump administration began a series of trade wars. First, the administration levied “national security” tariffs on imported steel and aluminum from virtually every country in the world, including longtime allies like Canada and members of the European Union (EU) in the North Atlantic Treaty Organization, a longstanding mutual defense pact. On the heels of the steel and aluminum tariffs, the Trump administration began an aggressive trade war with China over a number of Beijing’s legitimately concerning trade policy practices, including the abuse of intellectual property, theft of trade secrets, cyber hacking into commercial networks and the enforced policy that made American firms transfer technology to Chinese joint venture partners as a condition of doing business in the country. Instead of pursuing a more thoughtful strategy toward China, the Trump administration’s tariffs have almost certainly failed to change Beijing’s behavior and imposed enormous costs on American firms and families. As predicted, other countries, including China, retaliated against American exports, particularly agricultural products.

Agriculture in the United States is abundant. It is estimated that about 20 percent of agricultural products by volume are exported abroad.9 Likewise, exports have traditionally accounted for about 25 percent of annual farm income. Tariffs on American agriculture put downward pressure on commodity prices. Farm bankruptcies skyrocketed and there is early evidence that the financial stress of the trade wars increased suicide rates among farmers.12 To deal with the loss of market access abroad, the Trump administration dusted off a New Deal-era program called the Commodity Credit Corporation (CCC), to pay billions of dollars to farmers and in early 2020, signed the so-called “Phase One” deal with China, which obligates Beijing to purchase specific quantities of products, including agricultural products, in exchange for a détente in the tariff back-and-forth.

Under the Phase One deal, China committed to purchasing “an additional $12.5 billion of purchases in 2020 above 2017 levels, implying an annual commitment of $36.6 billion” worth of American agricultural products. Beijing only imported $23.6 billion in 2020. Likewise, “China committed to an additional $19.5 billion of purchases in 2021 above 2017 levels, implying an annual commitment of $43.6 billion.” Through July of 2021, Beijing’s purchases of covered agricultural products are about $23.2 billion with a target of $25.9 billion. In other words, China fell short of its agricultural purchase targets in 2020 and is falling short of the target for this year.

Likewise, in early 2020, the COVID-19 pandemic shutdown large sectors of the economy for a period of time. To date, the United States still has not fully recovered from the shock of the pandemic. To mitigate damage to farmers and ranchers, the federal government authorized additional ad hoc payments to the agriculture industry. In September 2021, the United States Department of Agriculture (USDA) forecasted that net farm income in 2021 will increase by $18.5 billion—nearly 20 percent— over 2020 levels. If all goes according to projections, net farm income would reach its highest level since 2013.

These series of ad hoc payments raise serious questions about whether they comply with the United States’ obligations under World Trade Organization (WTO) agreements. This paper will detail the structure of the bailout packages and the COVID-19 payments, and analyze whether the bailouts comply with the United States’ WTO obligations.

Press Release: Unstable Conditions: Trade Wars and Bailouts Hurt Farmers and Consumers Alike

Image credit: ABCDstock

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