← The Trade Guys
The Trade Guys
The Administration’s Farm Aid Package, China’s Growing Trade Surplus, and USMCA Extension Hearings
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- [00:01]
A
I'm Scott.
- [00:02]
B
I'm Bill and we're the Trade Guys.
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C
You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Alex Kisling and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys. Thanks for listening to the Trade Guys. On today's episode, we dig into the Trump administration's new farmer assistance program. Then we unpack the implications of China hitting a $1 trillion trade surplus and check in on the latest news around the USMCA Review. All that and more on today's Trade Guys. All right, Bill and Scott, today we're going to discuss a few items that have dominated headlines over the past week. And we're going to start with President Trump's $12 billion aid package to U.S. farmers. The the package includes an $11 billion payment under a new Farmer Bridge Assistance Program, or FBA, with another 1 billion to be used for crops not covered under the FBA. Scott, it's been a tough year for farmers with tariffs playing a large role, though there are certainly other factors at play. So what do you think will be the impact of the AGE package? And is this just a band aid on a bigger problem?
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A
Well, it seems to me that this is fairly typical for us countercyclical farm support. We have a long tradition. In fact, the agency that will do the most to administer this program and indeed the authority where the funding authorized by Congress is parked is a 1933 government corporation, the Commodity Credit Corporation. So this goes back to Franklin Roosevelt and the Dust bowl essentially of creating a basically a standing, what's become basically a financial services corporation that serves the American farm community through programs by USDA and others. So this is the CCC is actually the administrator of this particular program. Congress created the financial authority that president has allocated through USDA in this particular bridge program within the ccc. So this, this all feels to me as somebody who's off and on, worked on, on farm programs and agricultural issues, food issues over the years. This seems a part of the usual when farmers get in trouble, whether it's weather or trade or other external circumstances, whatever the emergency is, it's called a bridge because there is new authority in the one big beautiful bill that passed earlier this year, the reconciliation package. So a lot of new authorizations got wrapped into that, including components for farm support. And what the administration has done here, USDA and the president have wrapped up, taken existing authority and made a bridge to when the one way beautiful bill kicks in. So that looks like existing programs. Clearly they are targeting some of the commodities and farm organizations that are hardest hit by the trade frictions, particularly with China soybeans being the biggest one. But overall, we have farmers. We've been supporting them for nearly 100 years. And this is another one, Bill, mechanically.
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C
How will this work? And I guess one question that's come up is whether or not the aid will be distributed evenly and get to the people who need it the most. That was a bit of a criticism of the aid package in the first Trump administration, but what's your view there?
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B
Well, I do have a rant on this, but I'll save that. To answer your question, please. There's a complicated formula that they're going to use to distribute it, based in part on income losses. I think it's also limited to farmers with an income of less than $900,000.
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C
Right.
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B
That's gross income, I think. And it doesn't cover every crop, although the list of crops it does cover is very long. I spent five minutes before this podcast trying to figure out how to pronounce Cremba, which is an oil seed I'd never heard of, but it's on the list. It is actually a $12 billion package. The 11 is going to all these commodity crops. The remaining 1 billion is reserved for basically fruits and nuts and specialty crops. The idea, I think, is that farmers have to provide documentation for their loss of income and there will be a formula that will compensate them. It will not necessarily be 100% because that may use up more of the money than is available. The last time we went through this in Trump 1.0, it ended up being 23 billion. So this is only really about half of what he did the first time. I don't think it'll be distributed much differently than the last time. And, you know, it works. It provides compensation to farmers and the farmers are in trouble. There's no question about that. And I'd love to have more sympathy for the farmers than I do. My father in law was a farmer in Pennsylvania, which is a surprisingly large agriculture state, incidentally. Nobody knows that, but if you work for Pennsylvania, as I did, you learn about it. It's a big ag state. In fact, the chairman of the House Agriculture Committee right now is a Pennsylvania congressman. Anyway, onto the rant. What Scott neglected to mention is this is largely a problem of Trump's own making. You know, he's bailing out the farmers because of his tariffs. That's not the only problem. But a lot of it and the biggest loser here is, as everybody knows, is soybeans. And the reason the soybean farmers are in trouble is because they lost the Chinese market. And the reason they lost the Chinese market is because of Trump. So he dug the hole and he's using the taxpayers money to solve a problem that he created. And the farmers, last data I saw, more than 70% of them voted for him. So from my point of view, they're kind of getting what they deserve.
- [05:55]
A
Well, look, I take issue with one thing, Bill, and I do agree that this was provoked over soybeans. And the Chinese practice of switching their purchases from the United States to Brazil and other South American producers is rooted in the tariffs. The broader move here is the US Is trying to separate from China and China is trying to separate from the US Both, from a geopolitical standpoint, believe they'd be better off without the other one. Right?
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B
Yes.
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A
So this is, this is like a divorce, but it's not one party's fault. Okay? Both of them are making moves in a direction that would separate the two economies to a greater extent than they are today. Nobody can do it right away because, you know, we're dependent on some things from China. They still depend on us for some things. So the interdependence interferes with that. Plus they don't want to reach a level of provocation where this turns really ugly. But I think it's much more than just the actions of the President. I think China has its own reasons for diversifying its supply of basically the sources of protein. Basically, soybeans are fed to pigs. The big improvement in China's living standards was adding protein to the diet. That protein came in the form of a pork. So this all makes sense from a geopolitics standpoint as well. You don't want to be a sole source customer for any particular country and most importantly, not the United States. I think there are reasons on both sides for China to have taken the actions that it did. Did we start it? Maybe. Who knows? But I think it's just the way life is at the moment.
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B
I'm a proponent of no fault divorce. Not that I've ever taken advantage of it, but it's probably a better system. And I certainly agree that the Chinese are masters at weaponizing trade, and I think they've used their soybean purchases rather adroitly to send a signal to the United States. No question about that. On the other hand, most of the divorce, if you will, or the decoupling that's going on is national security related and is related on both sides, I think, to concerns about the geopolitics of the region and sort of maneuvering for actually military as well as technological advantage. Agriculture. Commodity crops don't really play in that. You know, national security, I would argue, doesn't really depend on how many soybeans we do or do not sell. The Chinese, and I don't think their national security is compromised if they buy them from us, nor is our security compromised if we can't sell them to them. I think we should focus the decoupling debate, you know, on semiconductors, on quantum computing, biotech, computers, actually software, a whole range of things that matter a lot more. This is basic stuff, and I think you're right that there's a multiplicity of factors here. And as I think we pointed out in a previous podcast, not every agriculture sector is suffering. Cotton, for example, is doing quite well. It seems to be related to their ability to find alternative markets. And in the case of soybeans, they haven't had much success at doing that. And if you look at some other industries, like cattle, I think they're more the victim of different set of problems.
- [09:06]
A
That's right. That's almost an entirely different story. But look, farm assistance has always made good political sense domestically in the US And I think it makes good sense to keep farmers in business and even modestly profitable, even if it does require some government support on a countercyclical basis.
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C
Do you think that this is a one and done then, or we'll be seeing more of this over the course of the administration already.
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B
Two are not done.
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A
Well, yes, but it's also, it's common practice. If we had bad weather in a part of the country next year, right, there would be farm support for the affected crop. But this is something that is built into the programs, like I said, over 90 years that this government corporation has existed to do precisely what it's doing this time.
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B
But the difference is that bad weather is not the government's fault. The disappearance of the soybean market is the government's fault. And that's the distinction. On the other hand, if you look at what Trump is doing on climate change, maybe bad weather is the government's fault.
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A
We'll find a way to blame everything on the president here. We just keep going.
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B
I'm doing the best I can. But I, I have to tell you, I was at a dinner last night. That was a new experience for me because I was outnumbered. I was outnumbered by people who support Trump's trade policy and that doesn't usually happen.
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A
They do exist.
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B
It's very enlightening and for once, a civil discussion. Nobody yelled at each other.
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A
That's impressive. Keep attending those dinners, Bill, and reporting back.
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C
An unusual Evening in Washington, D.C. doesn't.
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B
Happen around here very often. And the food was good, too. On top of that, even more unusual.
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C
All right, let's, let's shift gears here to another big item in the news this week. For the first time ever, China has reached a trade surplus of $1 trillion. So, Bill, let's dig into this. What's actually driving this growth? Will it continue and how concerning is this trend in your mind?
- [10:51]
B
Well, I think it will continue because China appears to be doubling down on exporting. What we've seen really for 30 years is that every time their economy gets in trouble of any sort, their solution is to try to export their way out of it. And that's exactly what they've been doing now. It's what they did during the financial crisis. It's what they regularly do in order to bring in money which they can then distribute according to whatever their policy of the time is. It was just something that people noticed in the past, I think, when we passed the trillion dollar point. You know, it's reached a level now that is causing an enormous amount of concern. Not really as much in the United States now as elsewhere. Our trade with China has gone down and has gone down rather significantly, but their exports to everybody else have gone up. They're actually exporting more this year, despite the decline in U.S. exports than they have in the past. And so suddenly you've got a whole bunch of countries who are very unhappy with Chinese policy. I was at a lunch with a Turkish business delegation on Monday, and they emphasized over and over and over that extent to which they are being hurt by Chinese overcapacity. And this is tricky. Not the United States. The Chinese have a fancy name for it. It's called involution. You know, and we've seen this many times and we've, we were an early victim and still are, but we're no longer the only victim, which is the new development. If you have an economy where credit is allocated by the state and not by the market, you always get overinvestment in the sectors that the state has prioritized. And when you get overinvestment, you always get over capacity, you always get overproduction. And then you have the problem, what do you do with the excess production? Chinese demand is historically weak. They under consume and overproduce and for years we over consumed and underproduced. So there was some complementarity there. But now they've expanded their policy to the point where they're overproducing for the whole world. I mean the one example that's the most famous one is, you know, their steel capacity now is greater than the entire rest of the world combined. And what that does as a practical matter is it destroys other countries manufacturing bases. So you see EVs coming into Europe at a scale and level and at a price which threatens European auto companies, which is the basis for the German economy. And not to mention when you start getting out into the parts and components and other brands, other countries there too. But the same thing is happening in Brazil, it's happening in Turkeya, it's happening in Southeast Asia, it's happening in Africa. And countries are slowly trying to figure out what they need to do about it. And it's a fumbling process. There's no organization, there's no coherence. It's kind of every country for itself. Ironically, Trump has kind of provided a model here.
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A
Well, yes, and Mexico is picking up on that to some extent.
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B
Big terrorists might do the job. Yeah. What we're going to be talking about next when we get to USMCA is the Mexicans just passed substantially increased tariffs on China, 50% on cars. So other countries are beginning to react to. Is this going to stop the Chinese policy? I don't think so. Acres of economists have told them for years this is not the way to solve their problem. The way to solve their problem is to increase domestic consumption and to create more market oriented conditions in the country so that companies that are need to fail can fail rather than be propped up by the state. They don't want to do that.
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C
Scott, I want your take.
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A
Sure. Look, Bill's on the right issue and all I can think of is that great Christmas movie, die hard. John McClane saying welcome to the party pal.
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C
He said, he said a lot of.
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A
Things in that movie but that particular one applies to all the Turkey business delegation and the Europeans and everyone else who are now dealing with the Chinese export juggernaut. China is really good at assembly, at scale, to just simplify completely. And they've continued to be very proficient at that. They make outstanding products at a very competitive price as a result. So in a head to head comparison, consumers around the world are rational actors. All right. I would just encourage anybody who hasn't seen a BYD automobile of any sort go and look at one. If you go to an auto show BYD is the premier or the. They're the General Motors of China.
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B
Won't find many of them here.
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A
You won't find them here. You'd have to travel to, to see them. But you really understand the value they're presenting. It feels to me when I experienced BYD vehicles in a comparative context, it felt to me like the 1970s and early 80s when Japanese manufacturers started making very high quality small cars and the comparison versus American small cars was dramatically in favor of the Hondas and Nissans and Toyotas. It's that kind of rational action by consumers that leads to this. But look, China is an odd economy. They have basically no middle, there's not enough domestic consumption. And you look at China in comparison to any other developed large economy where 70 plus percent of production is domestically consumed, China's closer to 40%. So they know one thing and Bill was right at the outset about this. When there's a problem, export led growth is the solution. The real question is that export led growth has to be accepted by some importer. It does cause problems everywhere it goes. The overcapacity is a well known problem. And the real question is do we have some allies to deal with it or are we just going to do our own thing and let the Trump model be imitated around the world? We'll see.
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B
Speaking of that, I have to say my favorite Bruce Willis quote is not from Die Hard.
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C
Careful here.
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B
It's from the Fifth Element, which when he walks into the room with this enormous weapon, kills all the aliens and says anybody else want to negotiate? Which is sort of the Trump philosophy, I think.
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A
Oh yeah, we talked last week about bullying versus persuasion.
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B
Brought that up. Great movie.
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C
All right, let's.
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B
No, no.
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C
All right, Bill, you alluded to this, but we're going to spend some time here checking in on subject we talked about a few weeks ago, the review of the U.S. mexico Canada Agreement, or USMACA as we like to call it. Earlier this month, the office of the US Trade Rep held a multi day hearing to hear from expert witnesses on the path forward for the review of the agreements. Bill, the witnesses were as far as I could tell, basically all saying keep usmca. Do you think the Trump administration is going to listen to that or are they going to take their whole exercise just for show?
- [17:44]
B
At this point, I don't think they'll pay much attention. I mean, you're exactly right that the business community came in, as it always does, and pointed out what I thought was obvious, which was that what we have done for 30 years is create an integrated North American economy. And that's been good. I think it's been good for everybody. That doesn't mean there aren't pockets of people that have been adversely impacted. There are. I think I told the story of when I was working on this issue for NAFTA in 1993 for Senator Rockefeller. I ended up telling him, look, you know, this is good for the country, it's bad for West Virginia. And I think that turned out to be right. It closed a lot of factories in West Virginia, net for the country. I think it was a plus. And it created a lot of jobs, produced a lot of growth. Trump, of course, doesn't see it that way. And I think the business community is going to do exactly what they've been doing and continue to say, this is important, this matters. And the fact is, after 30 years of integration, untangling would be enormously complicated and enormously harmful because you're going to be forcing people to change a lot of arrangements that have now become standard and normal. Main thing that worries me and my colleague in the Americas program at csis, and I have, I think, different assessments of the likelihood of this happening. But one of the issues going around is, is Trump going to kill you smacka and say, I want two bilateral agreements rather than one trilateral agreement? Because, and Ambassador Greer has gotten into this recently where he said, you know, our problems with Canada are different from our problems with Mexico, and it might make sense to have two separate agreements. And of course, this is in keeping with Trump's philosophy, which always to go bilaterally because we can push the other guy around. That worries me because that's not going to help the further integration of North America, which I think would be a good thing.
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A
Scott, this is one of these commercial issues that's very difficult to talk with politicians. I mean, I spent a long time face to face with members of Congress. Very few of them understood diminishing returns or opportunity cost or any of the things that you deal with daily in a business. One thing that comes to mind here, and I remember seeing this back when NAFTA was the worst trade agreement ever negotiated. This is 2018, and the cure to all NAFTA's ills would be this thing called USMCA, or call it USMACCA. I think my comment was something like the best part about USMACA was the 90% of NAFTA that was completely unchanged because there is a total undervalued underappreciation for leaving things alone, letting business arrangements sort themselves out in a stable environment. Bill is absolutely right. There's not a trade agreement. It is an agreement to make things together among the three countries, to make them together and sell them to each other in the rest of the world. That's really how NAFTA works. That's how USMCA at its best works. And that's what goes on in North America. It makes hemispheric production quite efficient and competitive on a global basis. It's why we have global companies and globally competitive exports. So if we can preserve without destroying would be a real meritorious thing. But nobody gets credit in Washington for leaving things alone. And so that's the challenge in a situation like this. And I think that's what you were hearing from the business representatives.
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B
Well, and the other thing you're hearing, you made an important point, too. Canada and Mexico are two of our three biggest trading partners. We kind of take turns being number one. Last I looked, Mexico was actually number one. It had been China before, and in the past it had been Canada. So two out of three are absolutely integral to our economy. And I think we interrupt that integration at our peril. I can be optimistic about one thing, though, and you can see this in the thing I referred to earlier, which is the Mexican legislature voting on these tariffs. One of the Trump objectives, I'm sure, is going to be how does the United States make sure that Canada and particularly Mexico are not backdoors for Chinese imports coming into our country, either by circumvention, you know, mislabeling or fraud, or by creating Chinese production facilities in Mexico, making the stuff there and then shipping it in. And it's beginning to look like this is an issue where the other two countries have similar concerns. I think the Mexican government has realized that, you know, welcoming Chinese investment into the country has not been an entirely unmixed blessing. It has not necessarily produced the employment they were looking for. And in some cases, it produced. It created some new jobs at the expense of some old ones. So there seems to be an interest there in preventing the Chinese from doing what Trump is very concerned that they might do. And that suggests there's a space here for common ground. You know, this is going to be a Trump priority, and I think it's one where he might be able to get cooperation for other countries and end up with something that's good for all three of them.
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C
Is Mexico taking that step on their own accord, or is that a preemptive move heading into the review and negotiations?
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B
Well, you know, who knows? The media says that they're doing it under pressure from the United States.
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A
It is intensely popular among elected officials in Mexico. Is it?
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B
There was a big majority voting for it, yes. I haven't seen a lot of Trump statements recently. To the extent there's been specific pressure, it's been for them to establish an inbound investment review process like the American cfius which the Canadians have and we have, but Mexico does not have. And they're a little bit derelict because they promised the Biden administration they would do that and they haven't done it. So that's a legitimate gripe on our part. And I suspect another outgrowth of the USPAKA negotiation will be a renewed commitment by the Mexicans to do it. And this time they'll actually follow through and do it. There's also a boatload of bilateral disputes and there Ambassador Greer is right. You know, we have a lumber issue with Canada. We don't have a lumber issue with Mexico that I know of actually. We have a dairy issue with Canada. They have a dairy issue with us. We have an energy issue with Mexico. You know, the issues are not entirely the same, but the advantages of working them out trilaterally I think exceed the advantages of trying to develop two different bilateral agreements.
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A
You know, when you have these large hemispheric in scope agreements and you make the agreement, it's kind of hard to find what to do for an encore. The second acts are hard to come. I observing, I think one of the best things that Europe has done economically was the single market. Single market was really a magnificent wealth creation agreement for Europe as a whole. That was 1995, I believe, when it entered into force. And there's no second act there either. It's like there was a lot undone left undone, I should say all of services. But given its strength and the power that it had to increase living standards in Europe, for some reason we can't figure out what to do next. And I think in many ways NAFTA or USMAQA has the same issue is what do you do next?
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B
Well, there is a second act in Europe which would be to expand the Eurozone, I think, and expand the use of the euro and do more on services. I think what's happening there, this is sort of off topic, but public opinion in Europe has become more negative about the whole thing and that creates some political difficulties that were not there in the beginning. It's become more difficult. There are some. Some of the governments are significantly more hostile to the idea of a single market. Well, they're not hostile to the single Market, I should correct myself. They're hostile to attempts to create a single foreign policy and to do a number of other things in common.
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A
Well, the commission has managed to turn itself into the world's largest, most annoying homeowners association. So I can understand why giving more influence to them is the is not seen as a good idea by Europeans. Who knows?
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B
Speaking of which, did you see that in Florida? This is really interesting. We'll see if it catches on. In Florida, a state legislature has introduced legislation that would allow homeowners to abolish their homeowners associations.
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A
You know, he's got a point for.
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B
Exactly the reason you just said he's got a point.
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A
You really get tired of being actored sometimes.
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C
Having served on the board of an hoa. I'm actually in favor of that move. It's one of the few logical moves coming out of Florida.
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B
We agree, you know, this could go viral. It could catch on and we'll find lots of states doing it. It's a new idea.
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C
Sign me up. Just quickly back on you, Smacka, because this is probably the last time we're going to check in on this before the end of the year. What should listeners be looking for over the next several weeks? Anything that you guys are keeping your eyes on in particular?
- [26:40]
B
There's going to be a meeting, I think at the ministerial level in mid January of the three ministers and I think that will be telling and we'll see what comes out of that. I think probably it'll provide some clues as to what the agenda is going to be because right now we don't really know what the three countries have been doing up until now have been going through independently on their own, a consultation process within their country pursuant to their own internal procedures to find out what their businesses, their workers, their consumers want to have happen. We've been doing that. USTR had a two or three day hearing in fact, where we began, Alex, with the statements you were mentioning. They came out of the hearing that USTR held. The Mexicans and Canadians have been doing the same thing. Starting in January they're going to start to put the pieces together and we'll begin to see what's on each country's minds in terms of what they actually want to carry forward to the other countries.
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A
Yeah, negotiation requires an agenda and as yet that agenda hasn't emerged. So a ministerial meeting would be a place for it to at least show some, you'd see some outlines and we'll.
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B
See who comes in with the big gun and says, anybody want to negotiate.
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C
I can't top that. Bill Scott, we have to end it there because the three of us need to go out to the theater to see Die Hard.
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A
Yes, definitely. Which is a Christmas movie.
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C
It is a Christmas movie. It's one of my favorite Christmas movies up there with Clark Griswold and the rest of the gang.
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B
How about Planes, Trains and automobiles? Isn't that one too?
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C
Well, that's a Thanksgiving movie.
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B
Oh, Thanksgiving. Okay.
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C
That's the only good Thanksgiving movie. That's my favorite movie of all time.
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A
Any.
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C
Anything John Hughes in my book is.
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B
A. Oh, that goes back a long way.
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C
It does, it does. So we'll. We'll leave it there. We'll see everybody next week for our final episode of 2025. Take care until then.
- [28:26]
B
Thank you.
- [28:36]
C
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