Last week, President Donald Trump unveiled a $16 billion plan to lift up farmers affected by the trade war with China, the second round of aid payments to farmers squeezed by retaliatory tariffs.
With many of the details still left to be worked out, one of the primary differences is that these new subsidies will be doled out to farmers based on acreage. Last year’s $12 billion in federal money from a tariff relief program was based on production, said Steve Deller, a professor with UW-Madison's agricultural and applied economics program.
The subsidy payments will be made this year in three installments: the first in July, the second in the fall and the third in January. Not all farmers will be eligible for it; only those affected by the trade dispute. Last year, soybean commodities took the brunt of fallout from the trade wars, leading soybean farmers to collect a majority portion of the bailout.
In an interview with Rob Ferrett of "Central Time," Deller said the trade war is piling onto an unstable market already made rocky with years of low commodity prices.
"(The subsidy) will be a short-term aid to some farmers, but it's a Band-Aid on a hemorrhaging wound," he said.
This interview has been edited for brevity and clarity.
Rob Ferrett: Let's talk about a double-whammy here. For some commodities, prices were already low and there's this trade war that’s hitting them again.
SD: One of the things that makes this particular period in farming different than historically is that historically you see this up-and-down pattern. There's this kind of cyclical pattern that farmers are very used to. They’re used to being able to ride these things out.
This is the first time since the farm crisis of the early 1980s that we're going into year five of down prices. It's that long-term downward trend that many farmers are simply not able to cash flow it anymore.
And that's where so many farmers are hurting. So this payment that's coming from the trade component of the support programs that are out there is not enough to reverse that.
RF: As a policy, farming or otherwise, do we see this kind of trade adjustment payment made? Is this something we've done before?
SD: Only in dire emergencies. You would have to go back to the farm crisis of the early '80s to see something like this. Part of what makes us a little bit different is that the trade policy is almost like icing on the cake of a bad situation.
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If you’re implementing policies that are impacting the farmers in a negative way, there's kind of this political need to compensate them for those poor policy decisions. Now we could get into a discussion about whether or not the current conditions between China and the U.S. are appropriate.
But the farmers are getting caught up in that fight.
RF: The goal, as the Trump administration states, is that times are going to be tough in the short-run but we're going to negotiate a more fair deal and everybody is going to be better off.
SD: Fair deal for who? What essentially has started this is the logical argument that China doesn't really respect international patent copyright laws. China is known for essentially stealing intellectual property rights and patents and copyrights, etc., and they've been doing it for years.
That's really what has started a lot of this. If we're going to stop them from doing this, we've got to get tough on them, and that's what got us into this.
I don't think the U.S. can convince China to change its practices on its own. This would have to take a number (of) China's trading partners to come together and essentially as a unified front come to China and say either you change your ways or we're going to start taking this much more seriously. I think that the way that the president is addressing it is probably not the most strategic way.
RF: Wasn't that one of the hopes for the Trans-Pacific Partnership, the idea that we get together — all these countries and not China — and we have more leverage over them?
SD: That's exactly right. Essentially the TPP established trading rules amongst many of the growing East Asian countries. And when we decided that we weren't going to participate in that anymore, we kind of set ourselves up for failure. It's better to have a seat at the table and try to influence those discussions than to simply get up and walk away.
I think the only way that we're going to see a long-term solution to this is if the U.S. trading partners come together and go to China as a bloc and say you need to better enforce your own laws.
In China, it is technically illegal to steal somebody's patent idea. The problem is that the Chinese courts don't enforce those laws. Until we can get that fundamental problem changed, this is something that is going to continue to put China at a competitive advantage over us. But the U.S. doing this alone isn't going to work. It's going to take our trading partners working together to put pressure on China to change that.
RF: If we don't end up with a deal, if these tariffs stay in place, how do you see that affecting farmers in Wisconsin and around the country in the next couple of years?
SD: Well, what happens to a large extent is that China is going to start going to some of our competitors to buy the products that they need. With soybeans, for example, Brazil is a major producer. And over time our competitors are going to be able to increase their production to such an extent that they will essentially be able to sidestep these tariffs and it will leave the U.S. farmers kind of out in the cold.