Will China Help End U.S. Farm Subsidies?

This morning, U.S. Trade Representative Mike Froman appeared before the Senate Finance Committee to talk and answer questions about U.S. trade policy.  Most of the questions centered around trade promotion authority, the Trans-Pacific Partnership, and how best to further the interests of industries or commodity groups that lobby Senators.  One popular way to phrase a question is to accuse other countries, especially China, of unfairly propping up their own industries and then asking how the administration is going to counteract that.

So it was that Senator Johnny Isakson (R-GA) asked Ambassador Froman about China’s cotton subsidies.

China is basically hoarding . . . buying cotton and hoarding it, and is stockpiling it.  And they’re subsidizing their producers at twice the world market price.  What can be done with China to enforce through the WTO or through any agreements we might otherwise have to keep them from manipulating the cotton prices and suppressing the cotton market?  

This accusation is kind of funny.  The United States is by far the world’s leading exporter of cotton.  We also subsidize that cotton like crazy.  Admittedly, the U.S. government props up domestic agriculture in slightly more complex and opaque ways than simply hoarding cotton, but if Senator Isakson wants to end distortions of global cotton prices, he could just stop voting for them.

Ambassador Froman’s response:

Well I think this is a very important point more generally, which is that the whole pattern of agricultural subsidies has changed a lot over the last 10 or 15 years.  When the Doha Round started, the focus on agricultural subsidies was really the United States and the European Union.  But in both of those areas, subsidies have come down, while subsidies from China and India in the agriculture area have increased, and by some measure China’s now the largest subsidizer of cotton.  And so we’re engaging with them and we had conversations also in the last couple days about that and about taking a fresh look at where subsidies are being provided, how it’s distorting the market, and how that should play into global trade negotiations.  I think it’s important that we update our view of where subsidies are coming from and what impact it has. 

If you’re a poor subsistence farmer in Africa, it doesn’t matter whether the subsidy’s coming from the U.S. or from China; it matters that the subsidy exists.  And so we’re hoping to engage with China on this and to create some disciplines around this.

These remarks are noteworthy for at least two reasons.  First, the U.S. Trade Representative is admitting that U.S. cotton subsidies harm poor African farmers.  Second, the fact that China is now doing it too provides an incentive to “create some disciplines around this.”

Reciprocal trade liberalization is a strange and wonderful thing.  U.S. cotton subsidies exist because elected officials are willing to burden the U.S. economy as a whole in order to support politically powerful special interests.  That same impulse motivates them to complain about foreign interventions that harm those interests.  Trade agreements harness that political reality to eliminate or reduce both distortions—to the benefit of almost everyone.

U.S. cotton subsidies have so far proven too politically popular for trade negotiations to make any difference.  The United States even paid Brazilian cotton farmers a total of over $700 million to settle a WTO complaint rather than reduce payments to U.S. cotton growers according to existing rules. 

Perhaps China’s growing use of subsidies can change the dynamic, making it finally possible for international negotiations to take on U.S. agriculture subsidies.