When pork prices collapsed amid a global trade war during the Great Depression, the Roosevelt Administration in 1933 had an idea slaughter six million piglets. Put a floor under prices by destroying supply. It didnt work. Now the Trump Administration may try its own version of Depressionomics by using the Commodity Credit Corporation (CCC) to support crop prices walloped by the Trump tariffs: Hurt farmers and then put them on the government dole. How about not hurting them in the first place?
Thats the question as Mr. Trump escalates his trade war, on Wednesday proposing 10 percent tariffs on $200 billion in additional Chinese goods. China says it is shocked by the new border taxes and will look to retaliate again and no doubt U.S. agriculture will again be one of its main targets.
Enter the forgotten but alas not gone CCC, the financial institution that FDR charged with solving the problem of depressed markets caused by weak demand. Farmers were told to plant less in exchange for a floor under prices. The CCC financed the purchase of surpluses through nonrecourse loans to farmers, and held the crops in storage.
When market demand improved, the Agriculture Department was supposed to sell the stored commodities at higher prices. Non-recourse meant that the farmer didnt have to repay the loan, and the USDA often couldnt unload the surpluses because demand didnt recover.
The Depression ended but the CCC kept going. In 2012 Congress put limits on CCC purchases of surplus commodities and on price supports after the Obama Administration used it for a costly 2009 disaster program without Congressional approval. But then out of the blue this year, Congress lifted the limits on CCCs power to remove surplus crops from the market to support prices.
Republicans made that change because the Trump Administration wants to use the CCC to mitigate the damage to U.S. crop prices from the Trump trade war. In a June 25 USA Today op-ed, Agriculture Secretary Sonny Perdue wrote that the Administration is ready to begin fulfilling our promise to support producers, who have become casualties of these disputes. Too bad these U.S. casualties were caused by friendly fire.
Mr. Perdue cited tools at our disposal to support farmers faced with lossesand he means the CCC. Its borrowing authority at Treasury is limited to $30 billion but it receives new appropriations when it has net losses for uncollected loans or commodities sold at a loss. The CCCs net loss was $21.29 billion in 2016 and $14.28 billion in 2017. And thats before Mr. Trump went to war with China, which retaliated with a 25 percent tariff on U.S. crops.
The American Soybean Association says U.S. growers exported $14 billion or 31 percent of their 2017 crop to China. The Chinese Academy of Agricultural Sciences a government think tank says the tariffs could cut Chinas purchases of U.S. farm products by 40 percent and that the value of U.S. beef, cotton, soybean and cereal exports could fall by 50 percent.
Expectations of large, unsold U.S. farm surpluses are already depressing market prices. Soybean prices fell more than 10 percent between April, when the Chinese first threatened retaliation, and mid-June. John Thune (R., S.D.) noted at a June 20 Senate hearing that corn, wheat, beef, and pork are all suffering market price declines as well due to current trade policies.
The bigger danger is that the need for Mr. Perdues help is unlikely to be temporary. Brazil has been gobbling up market share from American farmers for years. In 2017 it supplied over 53 percent of Chinas soy imports while the U.S. supplied 34 percent, its lowest share since 2006. With the higher tariff, Beijing will turn even more to Brazil and Argentina for soy and grains; Australia and Chile for fruit, nuts and wine; and Canada and the European Union for some or all.
Soybean Association President John Heisdorffer, a farmer in Iowa, says he is alarmed about the risk to the robust market that producers have worked so hard for decades to establish with China. Mr. Thune says that with every passing day, the United States loses market share to other countries competing with our ag product markets some of it unlikely to be recaptured.
The CCC is a relic of Dust Bowl America. Today the American farmer is high-tech, productive and eager to compete. Mr. Trumps trade policy is creating a problem that didnt exist and next he may create another one to ease the pain he has caused.
The Wall Street Journal
With every passing day, the United States loses market share to other countries competing with our ag products some of it unlikely to be recaptured
Sen. John Thune, R-S.D.
