Red farm states end up in the black with tariff payments

A handful of farm states, mostly in the Midwest and the Plains, emerge as net winners when the impact of retaliatory Chinese tariffs are weighed against the Trump administration's trade war payments to farmers, say three university economists. "It also is interesting to note that while most of the 'winner' states are red states that voted for President Trump in the 2016 election, the net welfare effect for key battleground purple states, such as Michigan, Ohio, Wisconsin, and Pennsylvania, remains negative."

In the winter issue of Agricultural Policy Review, the Iowa State University economists say eight states – Iowa, North Dakota, Nebraska, Kansas, South Dakota, Arkansas, Minnesota, and Montana – received more in payments from the stopgap Market Facilitation Program (MFP) in 2019 than they lost due to tariffs. Agriculture was the only sector of the economy to receive trade-war aid, so states where agriculture dominates fared the best.

President Trump has raised the possibility of MFP payments this year if trade deals, such as the Phase One agreement with China, fail to pay off quickly for farmers and ranchers. Retiring NFU President Roger Johnson said over the weekend that payments are certain "because it's an election year." Agriculture Secretary Sonny Perdue, who advises farmers to plant for the market, may be asked about MFP during testimony before the House Agriculture Committee on Wednesday.

Under MFP, the USDA has paid $23 billion in cash to producers to mitigate the impact of the trade war on U.S. agriculture. The payments are twice as large as the auto industry bailout of 2008-2014. Last year, 24¢ of every $1 in net farm income came through direct federal farm program payments.

"Both the 2018 and 2019 MFP payments concentrate heavily on Midwest states, reflecting the political influence of these states' rural communities," write ISU Economists Edward Balistreri, Wendong Zhang, and John Beghin. "Many Midwest states experience net welfare gains as MFP payments totally offset the incidence of tariff retaliation on the state economy."

Based on payments of $14.3 billion on 2019 crops and livestock, they calculate Iowa gained $878 million, North Dakota and Nebraska $532 million apiece, Kansas $475 million, South Dakota $347 million, Arkansas $216 million, Minnesota $140 million, and Montana $46 million. "These winner states, in general, disproportionately rely on their agricultural sector for income and received substantial MFP payments."

The remaining 42 states, including some major agricultural producers, lost more in tariffs and the burden of financing MFP in 2019 than they saw individually in payments. California, the No. 1 farm state in value of production as the leader in fruits, vegetables, and wine, effectively lost $8.2 billion. Texas, tops in cotton and cattle, lost $4.2 billion, and Illinois, often the No. 1 soybean state, lost $1 billion. California, Texas, and Illinois are states with large populations and a diversified economy. Agriculture is an important industry to them but not dominating.

In the four battleground states mentioned by the ISU economists, net welfare losses were estimated at $1.9 billion in Michigan, $1.5 billion in Pennsylvania, $1.4 billion in Ohio, and $552 million in Wisconsin.

Senate Democrats have criticized MFP as "a short-term solution that picks winners and losers, while failing to adequately help the farms hit the hardest." Led by Michigan Senator Debbie Stabenow, the senior Democrat on the Senate Agriculture Committee, Democrats say the program unfairly gives the highest per-acre payments to Southern growers and sends the largest checks to big producers.

"The Trump administration ignores any trade damage not related to its own chaotic trade actions and largely shuts out specialty crops and forestry from direct assistance," Democrats said last November.

The USDA says its payments reflect trade-war damage. For example, soybeans used to be the largest U.S. farm export by far to China, so the oilseed got the highest payment rate in 2018, $1.65 a bushel. In 2019, the USDA shifted to payments calculated on the trade war's impact on crop revenue in each county.

The top states for payments on 2019 production are Iowa with $1.582 billion; Illinois, $1.452 billion; Texas, $1.073 billion; Minnesota, $1.066 billion; and Kansas, $1.010 billion, according to USDA data.

The Agricultural Policy Review article, "The state-level burden of the trade war: Interactions between the Market Facilitation Program and tariffs," is available here.