President Donald Trump’s trade-related payments to American farmers have quietly become the mother of all bailouts.
Back when General Motors and Chrysler faced bankruptcy during the Great Recession, Presidents George W. Bush and Barack Obama pumped billions into a rescue of the auto industry. That bailout ultimately cost the public about $12 billion when everything was settled and loans repaid.
But that looks like small potatoes compared with the farm bailout underway now. So far, Trump’s direct payments to farmers hurt by his trade dispute with China have totaled some $28 billion — more than twice what the auto bailout cost, according to calculations from Bloomberg Businessweek. And the payments are still flowing with no end in sight to the trade dispute.
The real mother of all bailouts came during the Great Recession when the U.S. government pumped nearly $200 billion into Fannie Mae and Freddie Mac, the government-sponsored mortgage security agencies that were awash with bad mortgage debt. But that money eventually was repaid with profits for the government.
There is, in fact, a long history of government bailouts, mostly for failed banks. The news service ProPublica lists 980 such bailouts, of which most generated a profit or at least were repaid in the end.
The government advanced some $60 billion to GM and Chrysler during the bankruptcies of which most was repaid except for the $12 billion that wasn’t.
Here’s the problem: China has purchased billions of dollars worth of American-grown soybeans, pork and other agriculture products over the years. Farmers’ agricultural sales overseas have actually produced one of America’s few trade surpluses. But China’s soybean and pork purchases, including those from Michigan farmers, have more or less dried up because of the trade dispute that saw each nation slapping tariffs on each other’s goods.
Farmers are hurting. Net farm income this year is expected to total about $58 billion, the second-lowest profit of the past 10 years. That comes on top of other recent troubles, including this year’s spring rains that delayed planting and a multiyear drop in the prices of agriculture commodities.
Trump is trying to ease that pain through direct payments to farmers hurt by the trade war.
Yes, the government has been making direct payments to farmers for a long time. But the size of those payments is growing rapidly. From 2010 through 2017, direct government payments to farmers averaged about $11 billion a year. By the end of this year, those payments are likely to hit nearly $20 billion.
Or consider this: In 2013, direct government payments and federal crop insurance benefits made up 20 percent of U.S. farmers’ profits. This year, they’ll total about 34 percent as revenues from actual sales drops.
With no end in sight to the trade dispute with China, despite occasional hints of progress in the on-again-off-again negotiations, the payments to farmers hurt by lost sales look likely to grow next year.
Here’s another difference with the auto industry rescue of a decade ago: The auto industry’s giants, GM and Chrysler, were truly facing imminent failure during the Great Recession. Fears that a collapse of GM might cost 3 million jobs in the U.S. economy through ripple effects spurred the rescue effort.
Despite the dire need of the auto industry, that effort was controversial. Some conservatives argued that bankruptcy might be a better solution.
By contrast, American farmers, while facing some normal market ups and downs in recent years, were in nowhere near the same perilous position before the trade dispute disrupted their sales.
Indeed, the collapse of U.S. soybean sales to China was a self-inflicted wound brought on by trade hawks in Trump’s inner circle and their clumsy handling of legitimate trade disputes.
And now, having punished U.S. farmers to make his point with China, Trump showers them with cash.
John Gallagher is a senior business columnist at the Detroit Free Press.