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During the US presidential debate on Thursday, President Donald Trump, in an exchange with rival Joe Biden, falsely claimed that China was paying US agricultural subsidies.
"I only gave our farmers $ 28 billion," Trump said.
"Taxpayers' money," interjected Biden, the Democratic candidate. "(The money) didn't come from China."
Trump protested: “No, no. Do you know who the taxpayer is? It's called China. China is paying $ 28 billion, and you know what they did to pay it, Joe? They devalued and paid for their currency, and do you know who got the money? Our farmers, our big farmers, because they were targeted. "
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Trump's claim that China paid for American farm subsidies is false, as the US pulled out of its own state coffers to pay subsidies to empower farmers damaged by the US-China trade war. It is also unclear how his claims that China “paid” or “devalued” its currency relate to US government subsidies for American farmers.
Trump's January Phase 1 trade deal with China – a first step towards resolving the longstanding trade war – included a vow by China to significantly increase purchases of American agricultural goods. Such measures would have benefited US farmers, but China is currently far behind in meeting its targets.
The trade war began in July 2018 when the Trump administration imposed tariffs of $ 34 billion on Chinese goods, which meant it cost more for American companies to import products from China. In response, China imposed a 25% tariff on U.S. soybeans and other agricultural products, which meant American goods became more expensive to Chinese importers. Subsequent rounds of measures followed, raising China's soybean tariffs up to 33%. Chinese tariffs on US pork products hit 72%.
Trump often claims that China paid the tariffs its government imposed on Chinese goods. It is true that the U.S. Treasury Department has collected billions in tariffs in recent years, but that the money is paid by U.S. importers of Chinese goods, not Chinese companies or China itself.
In reality, tariffs should act as a deterrent. The ones imposed by the White House on Trump made it more expensive for American companies to buy Chinese items. The idea was that American companies would import fewer Chinese goods if the products became more expensive, which would ultimately harm China. American companies looked for alternatives to Chinese products after the tariffs went into effect, but also responded by increasing their prices to cover the additional costs and cutting other expenses such as jobs. In June 2019 alone, a group of trade associations found that Chinese tariffs cost US companies $ 3.4 billion. At the time of the January 2020 trade deal, Trump administration tariffs had cost US companies tens of billions of dollars.
The $ 28 billion figure Trump mentioned on Thursday appears to refer to the $ 28 billion in subsidies the U.S. Department of Agriculture (USDA) gave to American farmers between 2018 and 2019. The USDA has introduced the subsidy mechanism called the Market Facilitation Program. in 2018 to help farmers whose crops were targeted by China's reprisals against trade wars.
A farmer pulls a planter through a soybean field in Buda, Illinois in July 2019. Soybean growers were particularly hard hit during the US trade war with China. Daniel Acker – Bloomberg / Getty Images
Just as US tariffs on Chinese goods made items more expensive in the US, China's retaliatory tariffs on US goods made American products more expensive in China. In this case too, the additional costs were daunting. For example, instead of importing soybeans from the US, Chinese companies imported them from other countries such as Brazil. That was bad news for US soybean farmers, who exported around 25% of their harvest to China in 2017 before the start of the trade war.
The tariffs led to a steep decline in US soybean exports to China. From 2017 to 2018 they fell by 70%.
It is not clear how Trump concluded that China paid the $ 28 billion bill for farmers subsidies. The payments were the work of the USDA's Commodity Credit Corporation, an agency authorized to borrow from the US Treasury Department to help stabilize American agriculture.
"President Trump has a great affection for America's farmers and ranchers. He knows that they are fighting and being on the front lines," Agriculture Secretary Sonny Perdue told reporters in 2018.
Farmers are seen as a core part of Trump's electoral base, and the president continues to lead Biden in polls of American farmers in 2020.
Observers have criticized Trump for using the little-known USDA mechanism to protect his government from the negative political consequences of the trade war without having to submit the measure to federal lawmakers.
"What's unique about it is that (the subsidies) didn't go through Congress," Joe Glauber, former USDA chief economist, told NPR in December 2019 that they suddenly complain, it's being calmed by these payments. "
The Trump administration's approach has caught the attention of the US Government Accountability Office. It examines whether the payments were disproportionately distributed to large companies or to places that supported Trump in the 2016 elections.
The trade deal that the Trump administration signed with Beijing in January this year keeps China sticking to new shopping destinations in exchange for lowering tariffs. Chinese tariffs officially remained in place on US goods, but in practice, China granted Chinese importers duty-free exemptions on goods such as pork and soybeans.
Under the deal, China agreed to buy $ 36.6 billion in agricultural goods. This represents an increase of $ 12.5 billion from pre-war levels in 2017. On paper, this move by China is a real relief to American farmers. However, by August, China had only bought $ 11 billion worth of agricultural products, less than half of what it had to buy to be on track to meet the terms of the trade deal.
Meanwhile, U.S. farmers were more reliant on U.S. government support from 2018 to 2020. The proportion of income they get from the U.S. government as opposed to what they get from selling their crops has grown steadily over the past three years. So far, in 2020, 40% of farmers' net income came from government subsidies, the highest percentage in two decades.
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