This is not the first time Trump has had to pay farmers compensation for his tariff. During the trade war in his first term, he handed out $US23 billion of aid. The farmers would, you’d assume, prefer to be able to trade freely rather than rely on government charity.
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Trump and his officials have described the payments as a “bridge” to tide the farmers over until China delivers on its promises, even though the experience of the 2020 “phase one” trade deal, in which China made similar promises that it didn’t meet, suggests there’s a possibility that it will be a bridge to nowhere.
It’s consistent, however, with the administration’s broader assertions that Americans only have to wait – initially it was supposed to be this year, now it’s next year and beyond – for the benefits of the tariffs to flow.
The administration has previously rolled back tariffs on coffee, bananas, tomatoes and other foods that the US doesn’t produce in significant quantities in an attempt to blunt the impact of tariffs-induced spikes in prices and the cost of living for US households
Now it is subsidising its own agricultural production, while blaming the Biden administration and other countries for the losses of markets and the affordability crisis for middle and lower income household in the US that its own policies have created. Trump doesn’t seem to be able to connect the dots between the cause and the effect.
The hardship being experienced by US farmers isn’t only due to the closure of the Chinese market to their products after the April 2 “Liberation Day” tariffs. It’s not just a revenue problem.
Their input costs have risen sharply because fertiliser prices and farm machinery prices, among other items, have also jumped because of Trump’s tariffs.
The administration lowered the tariffs on some fertilisers last month in an implicit recognition of their impact, although Trump this week threatened “very severe” tariffs on Canadian potash in order to boost domestic production of fertilisers. About 95 per cent of Canada’s potash is exported, with about 50 per cent of those export volumes directed to the US. A tariff on potash would flow through to another hike in farm costs.
Farm machinery prices have risen because Trump slapped 50 per cent tariffs on steel and aluminium and tariffs on other imported items used in their manufacture. About a quarter of the components in a John Deere tractor are imported.
Trump, predictably, blames Joe Biden’s environmental rules for the rising cost of farm machinery and has said he will wind them back.
“You buy it, it’s got so much equipment on it for the environmental, it doesn’t do anything except it makes the equipment much more expensive and much more complicated to work,” he said on Tuesday.
John Deere has said that Trump’s tariffs, particularly those on steel and aluminium, will cost it $US600 million this year. It has laid off about 240 workers this year in response.
The other challenge for US farmers is labour. Trump’s aggressive crackdown on undocumented immigrants has produced a shortage of labour and forced up labour costs. More than 40 per cent of US crop workers lack legal status.
So, the tariffs have closed markets and reduced farm income while the tariffs and immigration policies have driven up costs. The bailout might help some farmers limp on into next year, but they aren’t a long-term response to the bind the farmers find themselves in.
The lost markets, higher fertiliser and machinery costs and shrunken pool of labour are structural changes to the economics of American farms that can’t easily, or readily, be unwound.
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Even if China does buy more soybeans and other agricultural commodities, it will buy much less than it did before Trump decided tariffs had magical qualities, able to fix the US trade deficit, rebuild the US manufacturing base, reduce US deficits and debt, fund $2000 “dividends” to households and even enable the abolishment of US income taxes. Oh, and bail out farmers.
China helped build the infrastructure in Brazil than has enabled it to displace the US as its major supplier of soybeans. It has also begun buying the beans from Argentina, much to the chagrin of the US farmers, who saw their administration give that country a $US20 billion bailout package that helped it sell up to $US7 billion of soybeans to China.
Having been burned twice by Trump’s tariffs, China will maintain the diversity of supply it has helped create. Its market, and those of other countries hit by the tariffs, will never be as open to US producers as they once were.
That has longer-term implications for the size and structure of the already heavily subsidised US agricultural sector, none of them pleasant.
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