UNITED STATES AGRICULTURAL SUBSIDIES IN THE CASE OF TRADE WAR BETWEEN THE UNITED STATES AND CHINA IN 2018-2019

UNITED STATES AGRICULTURAL SUBSIDIES IN THE CASE OF

TRADE WAR BETWEEN THE UNITED STATES AND CHINA IN

2018-2019

Introduction

The United States is a country that has a very fast economic growth with several

sectors, one of which is the agricultural sector (Banned, 2018). Corn, soybeans, wheat,

tobacco, cotton, fruits, and vegetables are the agricultural products of the United States. In

fact, the United States is a country that consistently exports soybeans and corn to other

countries. About 47% of soybean commodities enter the international market. In 2010, corn

increased by 33.1 million tons from 360% in 1950. Data from the American Farm Bureau

Foundation for Agriculture's Food and Farm Facts in 2018 states that the United States has

exported a total of US$ 139.6 billion in agricultural products (Farm Bureau, 2020).

The success of United States agriculture is also supported by the government with

land management using sophisticated technology and has a management system, namely

agribusiness. The agribusiness system is a management system in agriculture, managed by

someone who is an expert in that field (Sholikhah, 2018). Not only that, government support

through subsidies has also made this country successful in achieving its glory in agriculture.

Agricultural subsidies began with the Agriculture Adjusment Act of 1933 to the Farm Bill

and new programs on agricultural subsidies. This is done by the United States government

with the aim that the supply of agricultural commodities has increased and farmers' income

can be maintained so as to achieve satisfactory profits (Soim, 2020).

With related government policy programs on agricultural subsidies, this also has an

impact on abundant agricultural production, and affects the amount of production exported

to other countries (Sofiroh, 2019). As a result, agricultural land has become one of the

focuses of the United States government to achieve its economic interests. Various efforts of

the United States government in supporting the agricultural sector, with the aim that

agriculture remains attractive and profitable in international trade, and farmers avoid losses

(Sholikhah, 2018). United States agricultural exports in 2018 reached US$118.3 billion with

the dominant corn commodity amounting to US$9 billion and the United States controlled

50% of the world market (Sigid, 2019).

China is one of many countries that imports agriculture in the United States, namely

soybeans. China has long carried out import activities in the United States. So far, China has

imported around 60% of soybean production from the United States (Rahmawati, 2018). The

United States and China are countries that have influence in the international world. They

both want to show their hegemony so that this can lead to competition between the two

countries (Sholikhah, 2018). One such trade war between the United States and China began

when the United States imposed a 30% tariff on solar panels and washing machines.

Although the tariffs were not specifically aimed at China, China is the largest exporter of

solar panels (IndexBox, 2021). After the imposition of these tariffs by the United States,

both China and the United States continued to establish new policies as countermeasures to

each country.

On March 22, 2018 President Donald Trump announced that he would impose tariffs

of US$60 on Chinese goods entering the United States under the 1974 Trade Act Section on

the grounds of unfair trade practices and theft of the country's wealth (Rahmawati, 2018).

With this enactment, the trade war between China and the United States occurred. In

retaliation, China also applied tariffs on more than 128 US products worth US$3 billion,

including agriculture, livestock, steel pipes, aluminum (Sebayang, 2018). The trade war

between the United States and China certainly has an impact on several sectors of the United

States economy and one of them is the agricultural sector. The United States Department of

Commerce issued a statement that soybean exports fell by 75% in 2018-2019 (Gatra.com,

2019). The US government in response to this event made a policy of providing subsidies to

farmers of around US$28 billion (Carter & Steinbach, 2019). These subsidies are not only

given to soybean and corn farmers but also to sorghum, wheat, and cotton farmers (Sigid,

2019).

Based on the explanation above, the agricultural sector is an important sector for the

United States. The United States is trying to keep its agricultural sector maintained, not to

experience a deficit, and to restore the income of the agricultural sector to stabilize. In line

with national interests, the United States policy of providing subsidies aims to end losses

from the impact of trade wars in the agricultural sector. Then this will also show the analysis

of agricultural subsidies in a neo-classical perspective. So the author's question is "How are

agricultural subsidies carried out by the United States in the case of a trade war between the

United States and China in 2018-2019. The year 2018-2019 was the momentum of the trade

war between the United States and China, at which time the United States imposed tariffs on

Chinese goods that were considered unfair trade practices and theft of wealth owned by the

United States.

Research Methods

The type of research for this study uses qualitative research methods. According to

(H.B Sutopo, 2006) qualitative research methods are research methods that can bring

researchers closer to the object under study, because in this qualitative research method

researchers go directly or observe directly into the object of this research. What is meant by

observing the object directly is that the researcher becomes the main research tool in this

research. In this study, researchers used how to analyze and describe the object under study

with the researcher's point of view as an answer in the research "United States Agricultural

Subsidies in the Case of the Trade War Between the United States and China in 2018-2019".

The data sources in this research are primary and secondary data sources, because

this research obtains data using data derived from official national and international

government websites, books, journals that are in accordance with the object under study. The

object of this research aims to focus on the core issues raised by the researcher. With that, it

can be used to find out how the United States agricultural subsidies in the case of the trade

war between the United States and China in 2018-2019. The data collection technique in this

research uses literature study. The data analysis technique in this research uses three ways of

data reduction, data presentation, and data verification.

Results and Discussion

United States and China Trade War 2018-2019

The trade war between the United States and China has an impact on various sectors

in the United States, one of which is the agricultural sector. The trade war that occurred in

2018 caused intense competition between the United States and China. The United States

and China are countries that have great influence in the international world (CNN, 2020).

With the trade war between the two countries, the world economy has also felt the impact of

the trade war. The trade war between the United States and China began when the United

States imposed tariffs on solar panels (Badiri, 2020). Although the tariffs were not

specifically aimed at China, China is the world's largest producer of solar panels, with

around 60% of solar panels in the world being made in China (Pitoko, 2017). After the

establishment of these tariffs by the United States, both China and the United States

continued to establish new policies as retaliation against each country. It has been recorded

that three times the United States and China have raised tariffs on imported goods for goods

originating from the opposing country (Ardhani, 2019).

On March 22, 2018 President Donald Trump announced that he would impose tariffs

on 1,300 Chinese goods entering the United States amounting to US$60 billion. Most of the

goods affected by the tariffs will be in the technology and machinery industries (CNN,

2018). With the implementation of these tariffs, a trade war between China and the United

States occurred. In retaliation, China also applied a 25% tariff on 128 US products, including

fruits, nuts and pork (Badiri, 2020). The establishment of these tariffs has an effect on US

agricultural exports to China, which have decreased (Pujayanti, 2018).

Trade War Impacts for the United States in Agriculture

Tariffs imposed by the United States resulted in retaliatory tariffs on US$16 billion

worth of agricultural exports in 2018-2019 (Aer, 2017). Calculations from the International

Trade Administration suggest that US agricultural exports to China decreased by 58% in

2018-2019 (edward, 2018). However, in this case the impact While the 2018 US soybean

harvest, which would normally have increased sales to China, has decreased due to the

imposition of tariffs that have severely disrupted international market mechanisms (Aer,

2017).

China is not the only country that retaliates against the imposition of tariffs by the

United States, several countries also impose tariffs such as Canada, Mexico, Turkey and the

European Union. Mexico, Canada, Turkey, and the European Union imposed retaliatory

tariffs on the United States on their agricultural export products (Chinn & Plumley, 2020).

Canada imposed tariffs on fruits, vegetables and coffee. Mexico imposed tariffs on

processed vegetables, fruits, vegetables, and cheese. Turkey also did the same, imposing

tariffs on tobacco and tree nuts. The European Union also took part in this tariff retaliation

by imposing tariffs on nuts, seeds, and fruit juices (Chinn & Plumley, 2020). The imposition

of tariffs by several countries to the United States has destabilized the United States

agricultural sector. The United States' solution to the imposition of tariffs from some of these

countries is by lifting tariffs on steel imports from Canada and Mexico. On the grounds that

it can restore the performance of the United States agricultural sector which was initially

negatively affected by the retaliation of Canadian and Mexican tariffs (CNN, 2019).

This retaliation on tariffs will greatly affect the future agricultural export earnings of

the United States. In 2018, US agricultural exports to China fell 50% from 2017, and 2019

was not much better. Total agricultural exports to China were about $15 billion in 2019,

down from about $24 billion in 2017. Agricultural bankruptcies skyrocketed by more than

20% in 2019, as sales plummeted (Tong et al., 2019). The presentation already shows that

the decline in US exports was affected by the imposition of tariffs in the trade war. The

United State Department of Agriculture (USDA) gave an estimate of US agricultural debt in

2019 of $416 billion, with $257 billion in real estate debt and $159 billion in non-real estate

debt (Chinn & Plumley, 2020). These percentages adjust for inflation, and the value of debt

increased in 2018-2019 by 1.5% (USDA, 2019c).

With the retaliation of each country and each country both submitted requests to the

World Trade Organization (WTO) to immediately resolve or find a middle ground in this

case. Finally, on November 30, 2018, China and the United States met at the G20 forum

(USDA, 2019d). Each country negotiated with the other, and both agreed to fix the case.

China will also commit to increasing its purchases of US agricultural products, and the

United States agreed to postpone the imposition of import tariffs on China. This negotiation

was the last round in 2018 in the case of a trade war. However, in 2019 the start of the trade

war began again. The United States increased the cost of tariffs from 10% to 25%, which

was a new round in 2019 in the case of trade wars (Badiri, 2020). The settlement of this

trade war case is increasingly widespread and detrimental to US agriculture, because the

higher the tariffs imposed by the US government, the higher the losses experienced by US

agriculture (Swanson & Rappeport, 2020).

Agricultural Subsidies in the Case of Trade War

With the trade war, US farmers suffered a lot of losses, because their export activities

decreased and their income did not match the harvest (Rappeport, 2018). The government

made a policy to overcome these problems by creating a new policy, namely subsidies.

Subsidies are the US government's solution to overcome the impact of the trade war on

farmers, with the aim that US agricultural income remains stable and does not experience a

loss of income losses. The trade war with China is proof that the decline in export activities

has greatly complicated the economy and agricultural income of the United States (Charles,

2019). The subsidy policy is a step by the United States to achieve its national interests,

namely stabilizing agricultural income so that it does not suffer losses from the impact of the

trade war.

In 2019, the United States government sent a staggering amount of cash aid,

amounting to $28 billion (Badiri, 2020). The cash assistance issued by President Donald

Trump was enacted from a USDA program called the Commodity Credit Corporation

(CCC). The Commodity Credit Corporation (CCC) is a government company incorporated

in the Department of Agriculture (USDA). These CCC funds are used to implement specific

programs that require Congressional action in their decision-making. These programs

include domestic farm income, price support and programs, and foreign market

development. The CCC has been authorized to assist agricultural programs, one of which is

assistance for farmers affected by the trade war (USDA, 2018b). The cash assistance has

been provided to farmers of around $16 billion and the rest of the assistance will be provided

in 2020 (Charles, 2019).

This is the highest level of agricultural aid in 14 years. President Donald Trump is

very concerned about his agricultural products, so he does not want his agricultural products

to suffer heavy losses. The United States Department of Agriculture (USDA) issued a

subsidy that doubled the losses suffered by farmers in the case of a trade war. Payments are

adjusted to the amount of production, the greater the agricultural production, the greater the

assistance. The following are federal assistance programs to farmers due to foreign tariffs in

2018-2019: Market Faciliation Program (MFP), Food Purchase and Distribution Program

(FPDP), and Agriculture Trade Promotion Program (ATP) (Simpson, 2020).

Market Faciliation Program (MFP)

This program is a US government program under the USDA to help farmers affected by

foreign tariff retaliation that results in a decline or instability in export activities. Assistance

under this program is for agricultural producers of non-specialty crops, specialty crops, dairy

and swine. President Donald Trump authorized USDA to provide up to $14.5 billion in

direct payment assistance through the MFP program to assist farmers affected by foreign

tariff retaliation and the assistance is for 2019. Commodities covered under this program are

non-specialty crops, specialty crops, dairy and swine. Non-specialized crops: corn, dry

beans, dry peas, peanuts, wheat, sorghum, soybeans, sesame seeds, sunflower seeds, extra

long staple cotton and so on. Specialty crops: almonds, cranberries, cultivated ginseng, fresh

grapes, fresh sweet cherries, hazelnuts, macadamia nuts, pecans, pistachios, walnuts, and

other dairy and pork products.

The program is provided to eligible covered commodity farmers who have a gross

income of at least $900,000 or derive at least 75% of their adjusted gross income from

farming or ranching. Farmers must also comply with regulations set by the Highly Erodible

Land and Wetland Conservation and have a farm number registered with the USDA. The

payment system in this program is commodity-specific, for non-specialty crop commodities

the assistance is based on a single country's payment rate multiplied by the overall total

plantings of MFP-eligible crops in 2019. For specialty crops, farmers will receive payments

based on fruit or nut acreage in 2019. Payments under this support have already released

approximately $14.517 billion in payments to farmers (USDA, 2019b).

Food Purchase and Distribution Program (FPDP)

The FPDP is a government program to help US farmers by purchasing commodities that

have been unfairly targeted. Under this program, the USDA buys food agricultural products

through established vendors who have to prove that they can supply products that belong to

the United States. The program aims to help farmers who have suffered damage due to trade

retaliation from foreign countries. It applies about $1.4 billion through The Agriculture

Marketing Service (AMS) to purchase surplus commodities affected by trade retaliation such

as fruits, vegetables, and some processed foods (USDA, 2019a).

Trade Promotion Program (ATP)

The ATP program aims to provide cost-sharing assistance to US organizations to help

farmers and ranchers develop and identify new export markets in world trade (USDA,

2018a). In 2017, USDA provided assistance to 48 organizations worth $100 million through

the ATP program. However, at the beginning of 2018, $200 million in ATP funds were

allocated, as many farmers and ranchers were affected by the retaliatory trade war between

China and the United States (USDA, 2019e). The increase in USDA assistance through the

ATP program is a new policy to support agriculture in the United States. With the help of

funds that have been issued by USDA through this program, US exporters have experienced

a significant increase in trade destinations into Pakistan which generated $10 million in crop

sales in 2019. The program's efforts to market salmon sales to Vietnam and Thailand

generated $50 million, and increased exposure to more than 50 international markets

(FundsForNGO'S, 2019).

President Donald Trump is very concerned about his agricultural products, so he

does not want his agricultural products to suffer heavy losses (Chris, 2018). The subsidy

policy carried out by the United States government is in the national interest of the United

States so that the affected sectors do not suffer heavy losses. National interest according to

Hans J Morgentau is an effort to protect and defend all state identities in the political, social

or economic fields from interference from other countries (Morgentau, 1978). Subsidies in

the agricultural sector are a sign that the state will do anything to achieve its national

interest. The policy is an attempt to protect and maintain its economic identity. By achieving

these national interests, the state can achieve the desired power, because the basis of a

country's national interests is determined by the country (Suwarman et al., 2019). This is

done so that people's welfare can be fulfilled. The United States issued this policy with the

aim that the income of the agricultural sector was stabilized and did not suffer many losses.

In the assistance of some of these programs, the Environment Working Group

(EWG) recorded that the programs implemented were not proportional to helping farmers'

losses, because the data still prioritized white farmers over black farmers. The Counter, said

that in the case of the trade war between the United States and China, the aid was almost

99% focused on white farmers (Gaines, 2020).

The subsidies have sparked pros and cons in Donald Trump's policy towards

agricultural subsidies, and have been criticized by the public and high-ranking US officials

(Banned, 2018). Iiiuous Soybean Growers Vice Chairman Doug Schroeder also spoke out

against the subsidies because "short-term assistance does not create long-term market

stability". The policy was also criticized by many high-ranking officials in the United States.

This has left politicians in a state of confusion or distress, because usually with the aid they

reject programs government assistance that is considered detrimental to the country.

According to Glauber, Donald Trump's decision to impose tariffs was a bad decision, but the

bad decision was protected by the solution taken after the impact of the policy by utilizing

the Federal Treasury as if the impact had disappeared "The sector that is most harmed, and

complaining is suddenly relieved by aid, for me it is a problem" said Glauber (Nancy, 2020).

An example of a high-ranking official who disagrees with Donald Trump's policy is a

Republican Senator, who believes that tariffs are a tax that harms American consumers and

producers. Another example is Jackie Siper who thinks that this mess was made by Donald

Trump and Donald Trump spent almost $30 billion. They do not agree with this because this

subsidy is not the type of liberal country (Nancy, 2020). However, there are also those who

agree with Donald Trump's policy, namely US Farmer Leaders who welcome this

government assistance (Rahmawati, 2018). The assistance issued by President Donald

Trump is considered by US farmer leaders to be very helpful in recovering the losses

experienced by US farmers.

This subsidy policy with several assistance programs is sought by the United States

government to help its farmers recover losses and stabilize farmer income from the impact of

the trade war. However, there are still things that are deemed less than optimal so that it

reaps the pros and cons. Some public officials say that this subsidy policy is a short-term

solution to restore farm income. Unequal distribution of subsidies and discrimination against

white and black farmers. The subsidy policy is detrimental to the country's economy, as the

aid is a fantastic amount. The subsidy policy was not liberal. These are the reasons why there

are pros and cons.

Agricultural Subsidies from a Neo-Classical Perspective

Neoclassical theory is a liberal school of economic thought that describes the

formation of prices, production, and income distribution through the supply and demand

mechanism in a market (Muhammad, 2006). Neoclassical theory holds the view that the

economy will not always run smoothly, and neoclassical theory also disagrees if the market

mechanism is left entirely to the government (David, 2008). In 1929 this theory was

developed using a utilitarian system, this system uses little capital but a lot of profit or

fulfills the maximum (Muhamad, 2014). This neoclassical theory is more inclined to

liberalism or capitalism because all economic systems are controlled by capital owners. This

theory assumes that the market can run on its own, and there is government intervention. But

the government's role here is only to correct distortions not to change the market mechanism

(Drajat, 2018). The role of the government here is as a corrector if the market price rises and

does not interfere with the market mechanism, only limited to minimizing if there are crimes

or criminals in the market (Muhamad, 2014).

The neo-classical theory is a teaching that asks the market to compete freely, homo

economicus, invisible hand, marginal utility, and towards general equilibrium. This means

that the market is allowed to be free, so that people can achieve their own welfare in their

own way towards an efficient and optimal balance (Santoso, 2010). In the concept of neo-

classical theory, it applies that the market is allowed to run freely, without any government

interference, even if the interference leads to good results. The government should not take

over market activities or mechanisms that exist in neo-classical theory. These problems are

individual problems, the role of the government here is only limited to correcting distortions,

directing markets that end up imperfect to perfect (Murdani, 2019).

Neoclassical analysis can be used to look at agricultural subsidies in the case of the

US-China war. The United States is a country that has been classified as a developed

country. The success of the industrial sector, having qualified human resources, highly

sophisticated technological advances can be developed by the United States, so that it is

classified as a developed country (Susilawati, n.d.). In the use of neo-classical theory in the

world economy, this theory is often used by developed countries. This is because developed

countries are the dominating cause of the application of this neo-classical theory. The

success of developed countries in achieving the welfare of their people, which leads to the

impact of the increasing quality of mastery of science and technology. Therefore, this theory

is often used by developed countries to achieve economic success. However, not all

developed countries implement this theory by fulfilling what is taught. Like the United

States, the United States is a country with the ideology of classical liberlism. This ideology

also implements economic freedom (Badu, 2015).

The case of the trade war between the United States and China in 2018-2019, led to

new policies. The new US policy was carried out to overcome the impact of the trade war

case. This new policy is agricultural subsidies (Sigid, 2019). Agricultural subsidies imposed

by the United States are a solution to overcome the trade war that occurred. These

agricultural subsidies are in the form of cash assistance for several agricultural programs

(Chris, 2018). This new policy illustrates that the United States has intervened in its

economic activities. The United States seeks to ensure that its agriculture does not suffer

losses, so the United States issued the new policy (Soim, 2020).

The United States agricultural subsidy policy in a neoclassical perspective in this

case, the United States is considered to have no longer entrusted its economic activities to

capital owners or individuals. The United States has intervened in its economic problems by

making new policies even though these policies are considered to lead to good results

(Rahmawati, 2018). However, according to neoclassicals, this makes the market mechanism

that occurs will be disrupted, in the perspective of this theory states that the government

should not interfere too much in its economic activities (David, 2008). The government's

role is only to correct distortions or correct if the market experiences an imperfect market

and the government repairs it so that it becomes a perfect market (Murdani, 2019).

Neoclassical applies that the market is free, the market belongs to the owner of

capital, belongs to the individual. Therefore, the problems that exist in the market are the

responsibility of the owners of capital or individuals, not the realm of the government to

interfere with these problems (Muhammad, 2014). Government interference in this issue

clearly disrupts the market mechanism, because government intervention can change the

formation of prices, production and distribution that have been planned by the owner of

capital through the supply and demand mechanism of a market (Muhammad, 2006).

Similarly, the United States government issued a subsidy policy. Subsidies greatly disrupt

the market mechanism in the neoclassical perspective. The initial plan that has been planned

by the owner of capital will automatically change with government intervention through

subsidies (Santoso, 2010).

Neoclassical subsidy policies can jeopardize several factors, namely economic

problems, because the existence of such assistance can weaken the market mechanism in

agriculture. This can cause economic losses that result in overproduction, land irregularities,

crop irregularities and uncontrolled costs (Fathun, 2017). Some of these things cause market

mechanisms in agriculture to be disrupted. The United States issued this policy to protect its

agriculture from the impact of trade wars, but what needs to be underlined is that the subsidy

system undermines market mechanisms, inhibits innovation from capital owners to carry out

their economic activities, and makes the economy unfair (Putra, 2020). Government

interference should minimize market mechanisms to work and direct the economy towards a

balance of supply and demand is the main factor in determining goods, and income in

economic activities. However, the United States government continues to do so with the aim

of protecting its agricultural income so that it does not suffer losses but damages market

mechanisms and leads to protectionism.

Conclusions

The trade war between the United States and China has had an impact on several

sectors in the United States, one of which is the agricultural sector. The agricultural sector

experienced a decrease in export revenue of around 75%. To address this, the United States

issued a policy, namely a subsidy policy. The subsidy policy issued by President Donald

Trump is a policy to overcome the problems of the impact of the United States trade war

with China in 2018-2019. The subsidy policy by issuing several programs namely MFP,

FPDP, ATP aims to stabilize agricultural income from the impact of the trade war. With

these programs, there are pros and cons in the US government. The policy is considered an

unfair policy because the distribution is uneven and still prioritizes race. The policy is also

considered to be a short-term policy to protect its agriculture.

According to the neoclassical view, subsidies are harmful to the economy, as they lead

to overproduction, land drift, crop drift and uncontrolled costs. The United States issued this

policy to protect its agriculture from the impact of the trade war. This inhibits innovation

from capital owners to carry out their economic activities, and makes the economy unfair.

Neo-classical sees that the US government to overcome the impact of the US trade war with

China tends to implement protectionist policies and leads to policies to protect the domestic

market from international market attacks.

Agricultural subsidies given to farmers in the case of a trade war inhibit the economic

ideas of capital owners or individuals to survive. The role of the government in dealing with

this case should only be to correct the distortion, not to intervene in economic activities. The

market mechanism that has been established will be disrupted by this policy, because this

policy can change the formation of prices, production and income distribution through the

supply and demand mechanism of a market that has been carried out by capital owners. That

is the conclusion of the discussion above. Suggestions in this study, hopefully this analysis

can be continued by other researchers and can analyze more precisely in the implementation

of this subsidy policy.