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US president Donald Trump had some words of comfort this week for farmers cut out of the Chinese market by retaliatory tariffs. “Out of the billions of dollars that we’re taking in [from tariffs], a small portion of that will be going to our farmers,” he said on Monday.

“We’re going to take the highest year — the biggest purchase that China has ever made with our farmers, which is about $15bn — and do something reciprocal to our farmers.” In a separate tweet on Friday, Mr Trump promised to “ship [the food] to poor and starving communities in the form of humanitarian assistance”.

Any talk of governments buying commodities in bulk immediately sets off concerns among trade folk about dumping and the distortion of world markets. As it happens, the US could intervene to help its farmers without doing too much damage, making the huge assumption that Congress agrees to fund it. But turning the purchases into food aid could be disastrous.

If the US purchases commodities at current market prices, the spending will count as trade-distorting subsidies (“amber box” in World Trade Organization-speak) if it buys them above the prices set in a base period, usually 1986-88. However, as former WTO official Peter Ungphakorn points out, the US in 2016 used only about $4bn out of its $19bn amber box limit, giving it some room to play with.

However, sending those surpluses to countries suffering famine — assuming soyabeans mainly used for animal feed can somehow be repurposed as food aid — would be widely regarded as a terrible idea by development experts.

American in-kind food aid programmes started in the 1940s, but in recent decades the US has come to accept their potential to do more harm than good. Disaster response to food crises has taught donor countries and agencies two lessons. One, speed is vital. Two, most crises are local. It is much better to give stricken countries aid in cash to buy and transport food from the next region or the next country rather than ship it from Iowa. US food aid, 50 per cent of which by law must be carried in American-flagged ships, generally arrives several weeks too late to stop people starving, but just in time to undercut local farmers as markets begin to recover.

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The US has lagged behind other donors in moving from in-kind to cash aid. It has a well-organised food aid lobby, which these days is dominated by shipping companies and labour unions more than farmers. Last year, Mr Trump even briefly considered raising from 50 per cent to 100 per cent the requirement to use US ships, which would have made transport even more cumbersome.

Currently USAID gives about $3.6bn in food aid, of which about 40 per cent is in-kind. Increasing this by any serious proportion of the $15bn that Mr Trump has talked about would be widely regarded among other donors as one of the worst moves in foreign aid in recent decades. This does not, of course, mean he will not do it.

At the WTO ministerial meeting in Nairobi in 2015, the US signed up to guidelines confining the use of in-kind food aid to situations in which it was strictly necessary. But history rather suggests that when it comes to bailing out American farmers and dumping the food on developing countries, WTO rules will not be foremost in Mr Trump’s mind.

Can the EU and Japan tell Trump enough is enough?

© Bloomberg

Mr Trump’s other intervention this week, although on the face of it making more sense, appears to contain a poison pill that could do for the European and Japanese car industries what it has done for its own farmers, except without the bailout. The question remains whether Tokyo and Brussels can summon the courage to say enough is enough, rather than giving in to bullying as they have so far.

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Mr Trump, who received the commerce department report on the national security implications of auto imports, gave the EU and Japan six months’ reprieve in imposing tariffs to protect the US industry. The move was largely expected — though not entirely, as the relief rally in European carmakers’ stocks showed.

If the US president just wants to use the threat of tariffs to put pressure on Brussels and Tokyo to accelerate bilateral talks with the US that are already under way, that would be one thing. But Bloomberg reports that he also wants them to agree de facto export quotas along the lines the US forced on Mexico and Canada in the USMCA talks.

So far, the EU in particular has talked a good defiant game with the US, only to fold in the face of pressure from those same domestic carmakers currently being targeted. Under the threat of car tariffs, Brussels agreed last summer to open talks with the US in breach of its own promise not to negotiate at all unless Mr Trump lifted the duties he had imposed on EU steel and aluminium exports.

But accepting an indefinite slide into the kind of managed trade of the 1980s, with Japan agreeing voluntary export restraints on cars and steel, is another thing altogether. Even if the European carmakers improbably decided that accepting — perhaps only lightly binding — quotas rather than across-the-board tariffs was the lesser of two evils, it would be an extraordinary betrayal of principle for the EU to make that its official policy.

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In reply

It has been striking to see Donald Trump suddenly become so concerned about the plight of the poor and the hungry in the developing world — certainly not one of his core campaign pledges, writes Free Trade co-author James Politi.

The plan for the government buy billions of US farm products and direct them to international food aid does seem outlandish enough that it is unlikely to see the light of day — especially since it would require the consent of recipient countries who would surely, one hopes, object to the idea on the grounds of basic economic logic.

What the whole episode highlights, though, is the scramble within the Trump administration to find remedies to the fallout from the trade war. As the tussle with Beijing drags on, expect more hastily thought-out attempts from Washington to contain the political and economic damage.

The number: 7.2%

The growth in Chinese retail sales in the 12 months to April, the slowest expansion since 2003.

Chart choice

African swine flu in China has pushed up the price of pigs elsewhere, benefiting American farmers.

Further reading

Trump’s trade war could take US tariffs back to levels last seen in the protectionist 1930s (Peterson Institute for International Economics)

● China has ramped up its confrontational rhetoric with the US to play to nationalist sentiment at home (WSJ)

American households are likely to be hit harder by the new round of US-China tariff increases (FT)

● Matthew Yglesias tries valiantly to see some rational explanation in Trump’s trade policy (Vox)



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