Farm406

farm406 38 e consequences of retaliatory tariffs are fairly intuitive and have been discussed quite a bit in the popular media and, of course, in more disciplinary outlets. However, what happens if President Trump follows through with a subsidy to U.S. producers to counteract the losses that they may incur as a result of the retaliatory tariffs? Puing aside the politically-dangerous (if not completely impossible) notion of seing a price floor (a minimum price below which food cannot be sold), the figure below shows one such scenario, in which a subsidy that would be paid to farmers would fully offset the losses they would have observed if the price fell from the initial "free trade" price and the lower "retaliatory tariffs" price (certainly this is simply theoretical, because it may not even be possible to exactly measure the full impacts). e good news would be to the farmers, as they would gain back their entire benefit of producing and selling at the free trade price; in the figure, this "producer surplus" is represented by the red and green shaded areas. But at whose expense? U.S. taxpayers and food consumers (i.e., everyone). First, the total subsidy amount—represented by the red, green, and yellow areas on the graph—would be funded through government tax revenues and may require reallocation of funds from other government programs. Additionally, what the subsidy would essentially do is raise the market price back to the "free trade" level, which would result in U.S. consumers seeing higher prices than should be observed when retaliatory tariffs are in place and, consequently, reducing their quantity demanded. Furthermore, taxpayers would also take on the costs of the small yellow portion on the graph, which are the "administrative" or "dead weight loss" expenses of implementing this subsidy. Of course, there are also questions of how to implement such programs. One way would be the proposed use of emergency Commodity Credit Corporation funds, last used during the Great Depression to provide aid to the U.S. agricultural sector (a scenario described above). is would likely result in more food produced in the United States than can be consumed domestically. How to get rid of the extra products? Exporting. But, under current World Trade Organization (WTO) rules, a domestic policy that results in agricultural producers receiving a higher price for their goods than what they would on an open global market (essentially the outcome of a subsidy in response to a retaliatory trade tariff ) would likely enter into the category of "production-distorting" domestic programs, and could be either disputed in WTO courts or potentially invite additional retaliatory actions by other trade partners. What's the solution? Well, open markets within which any indications of market failures (i.e., inefficiencies that may require policy action) and their solutions are carefully researched and implemented. As Senator Steve Daines (Rep– Montana) noted, American farmers and ranchers "don't want a handout. ey want access to markets." American consumers want that as well.

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