The Trump administration’s actions only demonstrate more clearly the unholy alliance that has cost Americans trillions of dollars, obstructed more open trade and prioritized the interests of narrow groups of farmers over the wallets of the vast majority of Americans.
The tie between farm subsidies and protectionism began during the Great Depression. Both Presidents Herbert Hoover and Franklin D. Roosevelt wanted the government to raise the prices of farm goods to bolster suffering farmers, but they knew high prices would attract more imports from abroad. Their solution was to tie their new subsidies to new restrictions on farm imports.
In other words, early farm protectionism safeguarded the handouts.
These government actions turned American farmers, once the most ardent free traders in the world, into an impediment to free trade. During the Depression, farmers began growing crops for low-quality government surplus programs instead of for sale abroad. Farm products plummeted from constituting almost a half of American exports to a quarter in two decades.
These policies redirected American farm surpluses into infamous “government cheese” or corn meal handouts to schools, depending on what crop was overproduced in any particular year. Excess crops still left over after these programs did find their way abroad — but only because they were dumped for free or drastically reduced prices, leading affected farmers in many other nations to turn protectionist, as well. These farmers, in nations such as India or Brazil, became highly vocal opponents of trade liberalization, throwing up another barrier to trade.
Other farm policies hurt trade for the opposite reason. Starting during the Depression, the government paid many wheat, peanut and hog farmers, among others, not to grow crops or livestock. They used acreage limitations or “set-asides” to limit supply and raise prices, supposedly to avoid “overproduction” or surpluses.
While well intentioned, these policies had numerous unfortunate consequences. For instance, until the 1990s, peanut farmers needed a government license describing where and how they could grow their crop. The terms of these licenses left the government little choice but to keep peanut tariffs at more than 100 percent (where they remain today) to ensure that foreign competitors couldn’t undersell American producers complying with artificially inflated prices.
Such policies left American farmers uncompetitive globally, in addition to soaking Americans buying peanuts or peanut butter.
Some farm programs have been even more explicitly tied to trade barriers. Since the late 1940s, funds raised from increased tariffs on wool have been paid out directly to wool producers to keep prices high. Wool producers claim this means the program “pays for itself.” But it’s not an abstract “program” that somehow produces these funds. It’s American consumers who end up paying twice: once as taxpayers and once at the clothing store.
In the 1990s, reformers tried to cut back these programs. The 1996 Freedom to Farm Act and a few subsequent laws eliminated some of the worst programs. Yet wasteful farm subsidies still remain the greatest single stumbling block to freer trade.
In the World Trade Organization’s Doha Round of trade talks, beginning in 2001, developing countries’ most insistent demand was that rich countries cut back their farm subsidies and lower farm tariffs. Developing countries were outraged that rich countries inundated their farmers with subsidized and underpriced crops while refusing to let poor farmers sell in rich markets. Yet both Presidents George W. Bush and Barack Obama were unwilling to exchange their extravagant farm supports for lower tariffs overall — despite claiming to support free trade. As often before, the narrow interests of groups like the American Farm Bureau Federation triumphed over both ideology and public interest.
Now America’s farm subsidy policy is being extended across the globe. When the WTO ruled that America’s excessive cotton subsidies hurt Brazil’s cotton farmers and international trade, the United States found a solution. Starting in 2014, it gave $300 million in handouts to Brazilian cotton farmers, too. The alternative — lowering both tariffs and subsidies — was apparently impossible to imagine, even though it would have benefited the majority of Americans and Brazilians.
Politicians have long claimed that such subsidies support struggling small farmers. Today, however, this claim is clearly false. About 75 percent of farm subsidies go to the richest 10 percent of farms, not to mention the funds spent for the benefit of foreign farmers or agribusinesses. These programs redistribute money from average Americans to wealthy businesses.
The president’s congressional critics have the facts right, but they willfully ignore the longtime connection between farm handouts and protectionism, and the fact that one necessarily implies the other. Just as they both hurt consumers, they also hurt productive American farmers who can and should compete across the globe.
Only when Americans realize the long-term cost of these farm supports, far higher than the hundreds of billions of dollars given out directly by Congress, will elected officials begin to examine them more closely and demand an end to both subsidies and protectionism.