Trump Bails out Argentinian Farmers while American Farmers Suffer

As I have written many times, with autocracy comes incompetence. Today, I am going to describe another example of the incompetence of the administration of cult leader, convicted felon, and failed President Donald Trump. This particular situation is solely the responsibility of Trump and undermines his claims of being "America First." This is the strange triangle of American farmers, Trump's tariffs, and Argentina. It is a drama in three acts.

Act One is Trump's imposition of tariffs on imports, specifically those from China. China took immediate steps to retaliate. U.S.-China trade relations have been going through rapid ups and downs with Trump repeatedly announcing trade deals that don't materialize. Ramifications of Trump's tariffs and the Chinese retaliatory moves are not always easy to decipher, but when it comes to U.S. soybean sales, the impact has been very clear. Countries have learned to strategically target retaliatory methods in order to maximize political pressure on Trump. Farmers are a favorite target. They mostly voted for Trump and tend to live in states dominated by Republicans. China simply stopped buying U.S. soybeans and has not made a single purchase since May. Sales to China once made up about 60 percent of U.S. soybean exports. This is the height of the traditional export market, and farmers risk going out of business due to the loss of sales to China. The political pressure that the Chinese hoped to generate has been forthcoming, with desperate farmers pressuring their elected representatives for a solution.

Act Two begins with the President of Argentina, Javier Milei. Often described as the "Trump of Argentina," Milei was elected in 2023 on a populist right-wing platform. The political ideology of Argentina had largely been grounded in "Peronism," a system in which the state plays a leading role in the economy with the aim of providing social justice. Milei, campaigning with a chainsaw, had promised to cut government spending and return to strict free market principles. Winning a convincing victory, Milei went on to introduce austerity measures that disrupted Argentina's economy. Many of Milei's policies resulted in spending power decreasing for much of Argentina's population and, for many, life became much harder. Unemployment rose and wages were eroded. Argentina quickly became one of the most expensive countries in Latin America with some of the lowest salaries. The result was political disenchantment. Earlier this month, Milei's party suffered a landslide defeat in elections in the province of Buenos Aires, Argentina's most populated province. This was a bad sign coming just before next month's mid-term legislative elections. Victory in the mid-terms is essential for Milei to continue his austerity agenda. But Argentina's current economic challenges put such a victory in doubt. This in turn resulted in a market meltdown as investors feared that the mid-term elections would cripple Milei. As the Financial Times headlined when reporting on the situation, "Argentina spends $1bn to defend peso as President Javier Milei’s crisis spirals."

Last week, U.S. Treasury Secretary Scott Bessent stepped in to throw Milei a life preserver. Bessent promised to do whatever is needed and specifically offered to purchase "Argentina's USD bonds" and to "deliver significant stand-by credit via the Exchange Stabilization Fund." Bessent further stated that the U.S. Treasury was in negotiations to provide a "20 billion swap line," which involves the U.S. Treasury buying pesos with dollars. In his announcement, Bessent twice mentioned the upcoming election, suggesting that U.S. support was contingent upon the "correct" electoral outcome. It is hard to see any advantages for Americans in this deal, and it is clearly aimed at shoring up Milei politically. Essentially, Trump is doing a friend a favor using U.S. taxpayers' money. Bessent's promised intervention had the result of stabilizing things economically in Argentina.

However, Bessent's actions had another impact that might not have been expected. Argentina's falling peso had created a need for dollars that Bessent had not entirely satisfied. Therefore, Argentina announced that it would temporarily drop export taxes on grains, beef, and poultry in hopes of generating international sales in exchange for dollars. The very next day, Chinese buyers booked at least 10 cargoes of Argentine soybeans. This was good for Argentina, but bad for American farmers. As Reuters quoted Caleb Ragland, a farmer from Magnolia, Kentucky, and president of the American Soybean Association, as saying, "Every time China turns to South America instead of the U.S., soybean farmers and our farm families here at home lose out".

Act Three is Trump's attempting to bail out U.S. farmers from a mess of his own creation. The combination of reduced U.S. soybean sales and increased Argentinian sales created a political wildfire for the Trump administration. Bessent was photographed during the United Nations General Assembly last week reading a message on his phone from Secretary of Agriculture Brooke Rollins. The text read:

Just a heads up. I am getting more intel, but this is highly unfortunate. We bailed out Argentina yesterday and in return, Argentina removed their export tariffs on grains, reducing their price to China at a time when we would normally be selling to China. Soy prices are dropping further because of it. This gives China more leverage on us.

Trump's reaction was to begin discussing a bailout of U.S. farmers. Last week, he told reporters that "We’re going to be taking some money from all of the tariff money that we’ve taken, and we’re gonna distribute it to our farmers until the tariffs kick into their benefit." Characteristically, Trump barely made any sense whatsoever. Clearly, his idea is to use tariff revenue to provide payments to farmers. It is not at all clear what Trump means by the tariffs kicking into the farmers' benefits. As long as tariffs remain in place, there will likely be retaliatory measures. In the case of many of Trump's tariffs, he argues that they will cause production to be relocated to the U.S. in order to avoid tariffs. In this case, soybean production is already here. The problem is being able to export what is produced.

Despite Trump's insistence that foreign businesses pay tariffs, they are actually a tax on American consumers. Tariffs are reflected in either lower profits for businesses or higher prices for those who purchase the imports. Trump and the Republicans lowered taxes on corporations and the wealthy and promised to replace that revenue, at least in part, through tariffs. Instead, tariffs are leading to price increases for most Americans. Now, some of that promised revenue will no longer go to replace the missing taxes. As a result, additional borrowing to meet budget deficits will be required, and that, in turn, will likely result in higher interest rates. Instead, tariff revenue will go to payments to farmers who are unable to sell their goods. Americans who are not farmers will have the privilege of paying higher prices due to Trump's tariffs and absorbing a higher national debt with increased debt payments thanks to Trump bailing out a favored constituency. Such a bailout will require Congressional approval, and there are questions about whether any money can arrive in time to save many of the farms on the verge of bankruptcy.

Trump has a history of creating a problem and then taking credit for the solution to that problem. In this case, Trump created a problem, then attempted to solve another country's problem, and, in the process, made the original problem worse. Now he hopes to solve the initial problem but will likely create additional problems along the way. This is the price of incompetence. In the end, Trump may not even solve the initial problem that he created. It is hard to sympathize with American farmers. During Trump's first term, his tariffs resulted in lost sales for U.S. farmers as well. They turned around and voted for him again. Since farmers chose to allow Trump to not only fool them once, but twice, that seems like a mistake they should bear. But still, I am not a huge fan of farmers losing their businesses. The real issue here is the tariffs. The focus should be on ending those rather than bailing out a limited number of Trump voters.