Tariffs, Bailouts, and the Politics of Special Interests

Whenever power concentrates in any one branch of government, small groups with deeply felt interests will inevitably flock to it. As Milton Friedman observed long ago: “Every special group around the country tries to get its hands on whatever bits and pieces [of power in Washington] it can. The result is that there is hardly an issue on which government is not on both sides.”

On December 8, President Trump announced $12 billion in aid to American farmers, in yet another federal effort to mitigate the financial fallout from his trade policies. “Farm groups and Republican farm-state lawmakers have sought the aid in part to support farmers with purchases of seeds, fertilizer and other expenses for next year’s growing season,” Reuters reported.

Before the new aid was announced, the Trump administration was already poised to deliver close to $40 billion in near-record government payments to farmers this year. This comes on top of the over $20 billion in annual crop insurance subsidies they already receive.

Nevertheless, farm groups say the aid is merely a stopgap. National Farmers Union vice president Mike Stranz called it “a lifeline,” while American Soybean Association president Caleb Ragland said it is only “plugging holes and slowing the bleeding.” Agricultural interest groups are likely to continue advocating more government assistance to offset as much as $44 billion in revenue losses for the industry.

Farmers are once again reaping what President Trump’s trade wars have sown—despite his claim to be the only president “able to put farmers first.”

Fertilizer prices have climbed since January, amid tariff uncertainty and supply-chain disruptions. New tariffs—including expanded metal tariffs—have elevated the prices of farm equipment. Although President Trump’s tariff frenzy quickly outdates loss estimates, the damage is clear: tariff rates for agricultural inputs grew tenfold from one percent to 12 percent, directly driving up farmers’ production costs.

Meanwhile, corn, soybean, and wheat prices on the international market have fallen to pandemic-era lows, cutting into farm revenues. The problem stems largely from the U.S. trade war. As foreign countries respond with retaliatory tariffs on U.S. exports or shift to alternative markets, trade flows contract and demand for America’s agricultural output is reduced. This contraction further forces farmers’ hands toward seeking federal aid, in one form or another.

The trade war with China offers perhaps the most salient example. Historically, more than half of U.S. soybean output was exported, with roughly 25 percent of all American soybeans going to China. In recent years, however, Beijing has increasingly turned to Brazil. Trump’s trade escalation led China to halt U.S. soybean imports. And, while a deal struck in October included a pledge to purchase 12 million tons by year-end and 25 million tons annually thereafter, China has bought just 2.8 million tons since late October—less than one quarter of the promised amount.

America’s latest agricultural crisis is government-grown. The fastest relief—as some farmers know—lies in restoring free trade. Alas, another special interest stands to lose from it. Steel and aluminum tariffs—set at 50 percent and extended to “derivative” products—continue to shield domestic producers and their unions from competition, propping up prices, output, and wages.

Ultimately, when competing special interests dominate Washington and their interests collide, the outcome is predictable. A tariff bailout seems almost inevitable—particularly given the agricultural interest’s political significance for next year’s midterm elections. However, Friedman’s unsettling conclusion remains apt: “While many of these effects [of conflicting government policies] cancel out, their costs do not.”

“Such a system,” Friedman stated, “sacrifices the general interest to serve special interests.” And the latest farm bailout adds insult to the injury inflicted on American taxpayers, who, already harmed by protectionism, must now underwrite the losses of politically favored industries, all while the federal government picks trade-war winners and losers based on who wields political influence in Washington.