Trump's $12B aid to farmers won't ease the pain from the trade war

Reporter
Yahoo Finance

The U.S. Department of Agriculture (USDA) is offering $12 billion to assist farmers hurt by retaliatory tariffs, the agency announced Tuesday, noting that it is a “short-term” plan.

Through the Market Facilitation Program, Food Purchase and Distribution Program and Trade Promotion Program, the USDA will provide payments to producers of soybeans, sorghum and other crops, by purchasing unexpected surplus of affected commodities and assist in developing new export markets.

“This is a short-term solution to allow President Donald Trump time to work on long-term trade deals to benefit agriculture and the entire U.S. economy,” U.S. Secretary of Agriculture Sonny Perdue said on Tuesday.

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Farmers have been a casualty of Trump’s trade war. Countries including China, Canada and the EU have been retaliating on American agricultural products, aiming to hit Trump in his electoral base. China, for example, imposed 25% tariffs on soybeans, corn and wheat along with beef, pork and poultry since July 6. Soybean prices hit a 10-year low one week following the July 13 announcement.

Farmers say they want trade, not aid

As the trade war between the U.S. and China heats up, farmers are watching their selling season go to ruin. (Credit: AP)
As the trade war between the U.S. and China heats up, farmers are watching their selling season go to ruin. (Credit: AP)

Farmers growing certain crops can apply for the compensation in September and receive checks once they report their final yield. USDA hasn’t decided at which rate it will buy crops from farmers. While the process is rather straightforward, the generous aid likely does little to solve farmers’ real problems— market access.

Scott Henry, a farmer from central Iowa, expects a 15% decline in income this year because of tariff disruptions; bad climate conditions are also impacting his business. It’s near the harvest season for soybeans, and Henry doesn’t think USDA’s aid will offset his losses.

Soybean growers like Henry need to compete with Brazil, a lower-cost grower and the world’s largest soybean shipper. Last year, Brazil contributed the most soybean export to China while U.S. soybean exports accounted for 34% of China’s total purchase. Once Brazil takes away market share, it’s hard for American growers to get it back.

“There is only so much the government can do,” Henry told Yahoo Finance. “Working with loan programs that allow farmers to have an extended line of credit to give farmers more time to pay back doesn’t solve the problem, that just gives us time to stay afloat. We need access to the export market.”

Farmers for Free Trade, a lobbying group, said it will continue to urge the Trump administration to stop the trade war. “Farmers need contracts, not compensation, so they can create stability and plan for the future,” said Brian Kuehl, executive director of Farmers for Free Trade, in a statement. “This proposed action would only be a short-term attempt at masking the long-term damage caused by tariffs.”

Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.

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