Yes, But Still …
Nevertheless, that other countries subsidize their farmers is a pretty terrible excuse for the U.S. government to subsidize ours, particularly given the numerous problems that American farm subsidies create or support, including:
Beyond the mere budgetary strains imposed by the tens of billions of dollars that the government must borrow every year to subsidize our farmers, Edwards notes that those subsidies are also going to relatively rich people: farm household income is historically much higher (40 percent to 50 percent higher) than the income of the average U.S. household, and subsidies are typically concentrated among the largest farms. Subsidies also have been shown to disproportionately benefit landowners (even ones who are exiting production). In fact, past subsidy recipients include several billionaires (yes, billionaires with a “B”), and Trump’s trade war subsidies have only exacerbated the issue. As one University of Illinois examination of farm incomes notes, this trend is important not just for equity reasons, but because “farm programs were adopted in part as a response to the poverty of the U.S. farm population, which was 25% of U.S. population in 1930.” Not so anymore.
Harm poor countries.
Because the United States is a major exporter and importer of farm products, federal subsidies have a disproportionate effect on global agriculture markets and, in turn, farmers in developing countries.. A classic example is how African cotton farmers were hurt by U.S. cotton subsidies, which increased global production of cotton, thereby lowering the world price to levels at which less productive cotton farmers in West Africa couldn’t compete. As one study concluded, “[b]etween 2 million and 3 million farms in West Africa rely on cotton as their main source of cash income, and they compete directly with subsidized US cotton. Not surprisingly then, lower world cotton prices harm millions of households and more than 10 million people across the region.”
Farm subsidies also act as a “non‐tariff” barrier to imports of food and feed: By making U.S. farm goods cheaper to produce than in foreign markets, farm subsidies—like tariffs—raise the price of foreign goods relative to U.S. goods and thus reduce imports. Cutting U.S. farm subsidies would thus help some of the poorest people and regions in the world (especially since agriculture historically plays a foundational role in their economic development).
Given how American farm subsidies can hurt farmers in other countries, it’s no surprise that they’ve also created trade conflicts. For example, the United States’ unwillingness to agree to a lower cap on domestic farm supports was one of the main reasons that the World Trade Organization’s “Doha Round” of global trade negotiations fell apart last decade. (WTO members can subsidize their farmers up to a certain agreed level.) This is a dumb economic strategy: because WTO talks are comprehensive and reciprocal (we trade our concessions for their concessions), the United States’ recalcitrance on our relatively small agriculture industry helped sandbag potential gains for larger U.S. manufacturers and service providers in key foreign markets like China or India. Surely, other countries also contributed to the collapse of the WTO’s negotiating arm, but the U.S. position on ag subsidies (and a couple other issues) removes our ability to pressure them on it.
Our farm subsidies also generate formal trade disputes at the WTO or in national‐level “countervailing duty” cases, which allow governments to unilaterally impose duties on subsidized imports. The risk of anti‐subsidy actions (whether at the WTO or in CVD cases) is particularly a concern for export‐oriented farmers who could see their subsidy gains offset by foreign market losses, and it should grow in the wake of the new trade war and COVID subsidies. U.S. farm policy also leads to bizarre trade outcomes like the one where the Obama administration, after losing a WTO dispute to Brazil over cotton subsidies, didn’t eliminate them but instead decided to subsidize Brazilian cotton farmers (to the tune of $300 million!). Sigh.
As you can imagine, injecting billions of government dollars into U.S. and global agriculture markets creates all sorts of economic distortions, such as (1) supply gluts (remember that mountain of surplus cheese?); (2) support for unhealthy crops like corn and derivatives like high‐fructose corn syrup (which is also boosted by sugar protectionism), potentially encouraging obesity; (3) discouraging farmers from taking out private insurance; and (4) harming the environment.
This last point is especially noteworthy and problematic, as Edwards explains: