(Bloomberg) -- President Donald Trump’s promise to shield U.S. farmers from the economic pain of an intensified trade war with China indicates he’s ready to dig in on his demands for a deal, a stance that threatens an important part of his political base.
Trump said on Twitter Friday that the U.S. would use revenue from tariffs to buy the output from America’s farms “in larger amounts than China ever did,” even though the administration has yet to dole out all of the $12 billion in aid set aside last year after Beijing slapped retaliatory duties on agricultural products in the first round of the trade war.
The president said the government-purchased farm goods would get shipped “to poor & starving countries in the form of humanitarian assistance.” But he gave no details on how such a program would be administered. Agriculture Secretary Sonny Perdue, who is in Japan for talks, said in a tweet that the president “directed @USDA to work on a plan quickly.”
The U.S. ramped up tariffs on $200 billion in goods from China Friday and threatened to put duties on more Chinese imports if the two countries can’t reach a deal in the coming weeks. China has threatened to impose retaliatory tariffs on U.S. goods, and the agricultural industry was bracing for another hit.
“You know the retaliation is going to focus on rural areas because that’s his base,” Wallace Tyner, an agricultural economist at Purdue University in West Lafayette, Indiana, said in a telephone interview Friday. “That’s how these trade wars work, the other country always focuses on the adversary’s political base.”
China had made good faith purchases of soybeans as negotiations appeared to progress, Tyner said, but that may cease “if we don’t get a deal and Trump says ‘I don’t care how many months it takes.’" In that case “agriculture is going to continue to bear the brunt,” he said.
Farm country voted solidly for Trump in 2016 and rural areas of the U.S. have been a backbone for his Republican Party. But residents there are already reeling. Net farm income is projected to total $69.43 billion this year, down some 44 percent from 2013 levels, according to the U.S. Department of Agriculture. Expenses have increased in recent years and they’re saddled with record debt.
Roger Johnson, president of the National Farmers Union, the second-biggest U.S. general farm group, expressed concern with Trump’s tweet about buying up farm products.
“That’s a very different thing than assistance to farmers,” Johnson said. He said dumping supplies in other countries could further depress prices and also jeopardize those fragile largely agrarian economies.
Joseph Glauber, former chief economist at USDA, said corn and soybeans are typically animal feed and not food aid, which usually consists of wheat and rice. Such a move also would also invite further trade disputes, since they would likely be judged export subsidies prohibited by WTO, if they weren’t seen as humanitarian aid, Glauber said.
“You can’t just dump grain at concessional prices. That would constitute an export subsidy. That is something the WTO members agreed not to do,” Glauber said.
In the 2017 fiscal year, the Agency for International Development gave 3.12 million tons of foreign food aid valued at $3.62 billion, according to government figures.
Still, Trump’s political allies, and even some critics, are standing behind him in the confrontation with China.
‘Line in the Sand’
GOP Representative Tom Cole of Oklahoma said he fully supported the president’s stance even though the trade war was hurting businesses and farmers in his district.
"This is a line in the sand that needed to be drawn a long time ago, I’m proud he’s doing it and he deserves our support," said Cole, who predicted most Republicans would back the president.
Representative Brad Sherman of California, a longtime hawk on China trade, was among the Democrats who said he’s pleasantly surprised by Trump staying tough on China. He backed the idea of substantial tariffs and spending it on farm and other products impacted by Chinese retaliation.
"Of all the Trump policies, if I had to cheer one, this would be it," he said. "President after president has done nothing."
Farmers ‘Extremely Concerned’
There is some grumbling among agricultural groups, however.
The National Corn Growers Association, the National Association of Wheat Growers and the American Soybean Association released a joint statement Friday saying that “farmers across the country are extremely concerned by the actions taken today by President Trump and his administration.”
Ethanol, a source of domestic income for corn farmers, also faces steep tariffs from China, drying up exports to one of its largest buyers.
“It’s just one hit after the next for our industry and the rural economy. We will continue pressing the administration to reopen these critical markets,” said Chris Bliley, vice president of regulatory affairs at Growth Energy, an ethanol industry trade group.
Geoff Cooper, president of the Renewable Fuels Association, expressed similar concerns.
“News of the worsening trade conflict with China is yet another punch in the gut to the U.S. ethanol industry and our partners in agriculture,” Cooper said. “The escalating trade war just exacerbates the turmoil in our markets and pushes rural America closer to the precipice.”
Johnson, the National Farmers Union president, said that Trump still retains the support of farmers despite the financial pressures on them.
“There’s still a lot of them that support, but they’re still hurting,” Johnson said. “The bottom line is they’re going broke and they’re going broke fast.”