Just as Mexico was supposed to pay for the wall, but isn’t, now China is supposed to pay for President Donald Trump’s plan to bail out US farmers.
Neither statement is true, of course, as has been pointed out repeatedly.
Trump does not talk about Mexico paying for the wall much anymore. He’s too busy saying the wall is getting built, when it’s actually just renovation of existing fence.
But he is just getting started on the claim that China is paying to prop up American farmers hurt by the trade war. Having already approved a $12 billion bailout in 2018, the President on Thursday announced another, larger, $16 billion bailout as talks with China have stalled.
It was Chinese retaliation against US farmers – a countermeasure to the trade war Trump kicked off with US tariffs on Chinese goods – that led to farmers needing bailouts in the first place. That hasn’t stopped the President from crowing that China would foot the bill for damage to US farmers.
Back on May 14, he tweeted: “Our great Patriot Farmers will be one of the biggest beneficiaries of what is happening now. Hopefully China will do us the honor of continuing to buy our great farm product, the best, but if not your Country will be making up the difference based on a very high China buy… This money will come from the massive Tariffs being paid to the United States for allowing China, and others, to do business with us. The Farmers have been ‘forgotten’ for many years. Their time is now!”
Agriculture Secretary Sonny Perdue repeated that claim Thursday on Fox Business News, arguing that Trump would not let China outlast him in trade talks and, of farmer aid, “China’s gonna pay for these.”
Here’s what we know about who really pays the farmers.
Where does the bailout money for farmers actually come from?
The first round of farmer bailout was paid for out of the Commodity Credit Corporation, a Depression-era entity now administered by the US Department of Agriculture that has the authority to borrow up to $30 billion from the US Treasury.
All indications are that the second round of bailout would be financed the same way, although it is possible Congress could get involved. Congress, ultimately, picks up the tab through its appropriations bills, according to a Congressional Research Service report that explains how the corporation works. USDA has a lot of flexibility to use the money as it sees fit to keep agriculture prices steady.
Does China pay any of that?
No. China itself does not pay anything.
Chinese goods aren’t hit by tariffs until they get to the US, where middleman corporations known as importers of record actually pay what the government technically calls “customs duties.” (Read about how to get a license to import things at the Customs and Border Protection website.)
There’s been a lot of debate about who ultimately soaks up the new charges. Some have argued that Chinese firms are eating the cost of the tariffs in order to keep market share.
But there’s evidence that US companies selling Chinese goods have so far paid, and there is plenty of evidence that prices are starting to climb as a result of the trade war – which means, actually, US buyers are paying.
According to a report from the New York Fed released Thursday, increased US tariffs on China will cost the typical US household $831 each year. Walmart has warned of rising prices and so have retail groups like the American Apparel Manufacturers.
Will the tariff money coming into the Treasury cover the bailout?
Nope. There was an increase of $18 billion in the first seven months of the 2019 fiscal year, according to the Congressional Budget Office.
However, these increases, according to CBO, were almost entirely offset by higher short-term interest rates that cost the government $15 billion.
Plus, the US budget deficit rose by $44 billion, more than offsetting the tariff increase.
Are the payoffs to US farmers enough?
Farmers say no. The first round of the bailout was restricted to farms that made $900,000 or less annually and payment was capped at $125,000 per farmer. The payments were made based on a price for unsold crops and livestock set by USDA.
The new round will focus heavily on soybean and hog producers. The National Corn Growers Association said that for its members the first round of bailout equaled about a penny a bushel, and that corn lost an average of 44 cents per bushel in 2018.
“A penny didn’t cut it then and won’t cut it now,” said the group, which is urging its members to call the President and complain.
Is all this worth it? Are the tariffs working?
They are not working in that the US does not have a trade deal with China. They are working in that the trade deficit with China has shrunk a little bit.
But the overall trade deficit for the United States was up in the latest report released by the Census Bureau – possibly because manufacturers are starting to move production to third countries to avoid the trade war altogether.
Trump himself recently suggested that firms leaving China could go somewhere else – say, Vietnam – to avoid tariffs. That would indeed hurt China, but it would do nothing to help US manufacturing or to reduce the overall US trade deficit.
When will this end?
It’s hard to say, since the trade talks with China have stalled and neither Trump nor the Chinese president, Xi Jinping, shows any sign of backing down.
But there is some indication that Trump’s interest in some tariffs is wearing off. He blinked and lifted tariffs on steel and aluminum from Canada and Mexico in order to get those countries to ease separate retaliations they had imposed on the US agriculture sector.
Trump has found himself to be the tariff aggressor in multiple trade wars on multiple fronts. It was an untenable situation to be playing tough with the top three US trading partners at the same time.
It’s certainly a long way from last December, when Trump and Xi declared a truce to let talks go forward and Trump’s North American Free Trade Agreement replacement seemed on track. The only certainty right now is that US farmers need help, and taxpayers are going to foot the bill.