President Donald Trump's billions in bailout payments for farmers probably pushed the U.S. past international treaty limits on subsidies, potentially inviting retaliation from trading partners, according to an advocacy group.
The Environmental Working Group, a critic of farm subsidies, calculated that the aid pushed "trade-distorting" subsidies covered under a 1994 international agreement to $34 billion in 2019, far above the pact's $19.1 billion cap for the U.S. The analysis projected the U.S. probably will exceed the cap again in 2020.
The European Union, China and five other World Trade Organization members have already raised complaints that Trump's farm assistance payments may violate international rules. Brazil, Canada, Australia, New Zealand and the EU raised more questions about the assistance payments in advance of a trade organization agriculture panel meeting Thursday in Geneva. The U.S. Agriculture Department denies it's violating the treaty.
"The administration will ensure that all payments are consistent with the WTO Agreement on Agriculture, including obligations capping trade distorting domestic support," a USDA spokesperson said in an emailed statement.
Several independent analysts agreed that the U.S. is probably in violation, though any official action by the trade organization might not come for years, if at all. Still, other nations could respond with retaliatory measures on U.S. products or escalate their own farm subsidies, cheapening their exports and lowering global prices.
Breaching the international limits "cuts the legs out" from long-standing U.S. efforts to control other countries' subsidies of agricultural production, said Jeffrey Schott, a former U.S. Treasury Department official and trade negotiator in Republican and Democratic administrations who is now a senior fellow at the Peterson Institute for International Economics.
"Agriculture subsidies have been a big problem," Schott said. "We care about it because we have competitive farmers. But if other countries subsidize their farmers, that could offset the competitive advantage our farmers have. And that happens from time to time."
Any sanction through the trade organization, long a target of Trump's complaints about trade, would probably take years, long after a presidential election campaign in which the president is depending on overwhelming support from farmers who benefit from the recent flood of government aid money.
But tension over the subsidy payments could spill over into a trade war between the U.S. and the EU.
Trump authorized a $28 billion trade bailout over two years for farmers hit by his tariff war with China. The administration also announced a $19 billion coronavirus bailout from money Congress allocated in its relief package and soon will have access to an additional $14 billion in borrowing power. Farm groups are jockeying for additional aid in the next pandemic relief bill.
Not all the trade and coronavirus aid counts as "trade-distorting" subsidies under the international rules. And some of the federal government's regular farm aid program does. The rules also have complex procedures for determining to which "crop year" to attribute aid payments that don't align with the fiscal year.
As a result, the trade organization might count a total lower than the Environmental Working Group's calculation -- probably between $30 billion and $34 billion for 2019, which still far exceeds the treaty limit, former USDA chief economist Joe Glauber said.
The U.S. probably won't submit its report on the 2019 payments until 2021, and it may argue that they don't run afoul of the agreement. It would then be up to another country to submit a complaint demonstrating harm to its producers.