Moody’s: Trump’s $12B Farmer Bailout Won’t Have the Desired Effect

Trader Patrick Casey works on the floor of the New York Stock Exchange, Thursday, Aug. 2, 2018.

Trader Patrick Casey works on the floor of the New York Stock Exchange, Thursday, Aug. 2, 2018. Richard Drew / AP Photo

 

Connecting state and local government leaders

Iowa, Kansas, Nebraska and North Dakota have the most to lose in a “trade war” with China.

The $12 billion relief package recently proposed by the Trump administration to support farmers hurt by the president’s “trade war” with China and other countries will help individual farmers, but won’t improve the long-term health of their sector, according to a Tuesday report from Moody’s Investors Service.

Instead, the report found the disputes will likely exacerbate the agriculture sector’s decline in top farm export states: Iowa, Kansas, Nebraska and North Dakota.

These states are most vulnerable to trade disputes, due to their high volumes of farm exports and extreme economic dependence on agriculture, according to the report. The four states specialize in pork, soybeans, beef and wheat—among the top exports to China.

All four states also have aging, slow-growing populations that limit labor force growth into other sectors, though their strong credit profiles could help them weather short-term economic uncertainty, the report said.

Trump last week threatened to increase tariffs on $200 billion in Chinese imports to 25 percent to offset changes in currency prices, but China has readied $60 billion in retaliatory tariffs aimed at wood products, liquefied natural gas and mineral ores.

The president began imposing safeguard tariffs in January citing decades of trade abuse at the hands of, in particular, China, whose predatory practices include suppressing the value of its currency, dumping steel onto world markets and intellectual property theft. But farmers balked at tariffs on major U.S. trade partners Canada and Mexico, prompting a relief proposal.

At the time, Secretary of Agriculture Sonny Perdue said the package was a “short-term solution” buying Trump time to develop with “long-term trade policy and deals,” but opponents panned the proposal as a “bailout” and argued ending the tariffs is preferable.

U.S. agriculture commodity prices have been in decline since 2014, slowing personal income and state revenue growth. The four most vulnerable states account for 30 to 40 percent of agricultural goods targeted by China with its tariffs.

“Tariffs will raise the cost of US-produced commodities to Chinese purchasers relative to goods produced in other countries, reducing demand and putting downward pressure on prices received by farmers,” reads the report. “For example, soybeans futures have plummeted 14 percent from late May to the beginning of August in response to China's tariff announcements.”

“Moderately well-prepared for an economic downturn,” the four most-vulnerable states generally have strong revenue and spending flexibility and low debt and pension liabilities, according to the report.

Dave Nyczepir is a News Editor at Government Executive’s Route Fifty and is based in Washington, D.C.

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