Agriculture Department official Ted McKinney meets with a delegation of soy importers from China at a conference in Chicago on Aug. 22. (Karl Plume/Reuters)
By Jeff Stein

Jeff Stein

Economic policy reporter

Senior government officials, including some in the White House, privately expressed concern that the Trump administration’s nearly $30 billion bailout for farmers needed stronger legal backing, according to multiple people who participated in the planning.

The bailout was created by the Trump administration as a way to try to calm outrage from farmers who complained they were caught in the middle of the White House’s trade war with China. In an attempt to pacify farmers, the Agriculture Department created an expansive new program without precedent.

As part of the program, the USDA authorized $12 billion in bailout funds last year and another $16 billion this year, and Trump has said more money could be on the way.

But two Agriculture Department officials involved in the bailout program told The Washington Post they were worried the funding could surpass the original intent of the New Deal-era Commodity Credit Corporation, which is being used to distribute the money. The CCC, as it is known, had previously been used only to create substantially more limited programs. The officials spoke on the condition of anonymity to avoid professional repercussions.

Separately, some officials in the Office of Management and Budget also raised questions about the scope of $16 billion in a second round of bailout funds. They pushed the Agriculture Department to provide more legal reasoning for the effort, the officials said. In a statement, a USDA spokesman officials said the concerns raised by OMB were already resolved, however.

[Trump’s $16 billion farm bailout will make rich farmers richer, report says]

USDA attorneys have signed off on the bailout package, and the government has issued more than $11 billion in farm bailout payments. More will be spent soon. 

The concerns come at a crucial time for the program, as many farmers are relying on the funding, and congressional approval is required because the White House is nearing an annual $30 billion cap on CCC payments. 

Independent legal experts agree that Agriculture Secretary Sonny Perdue has broad authority to unilaterally help farmers, including through the administration’s bailout program.

The bailout funds are part of the White House’s effort to contain an outcry from farmers who have complained that China and other countries have cut back on U.S. purchases in retaliation for the higher tariffs Trump has imposed on a range of imports. 

As U.S. soybean exports have fallen, Brazil has stepped in and increased exports, worrying U.S. farmers that a global realignment has taken place that will be hard to reverse. Trump has tried to assuage concerned farmers by approving the two rounds of bailout funds, and he repeatedly tells farm groups that his adversarial approach to trade will prove a huge win for them in the future.

“As they have learned in the last two years, our great American Farmers know that China will not be able to hurt them in that their President has stood with them and done what no other president would do — And I’ll do it again next year if necessary!” President Trump tweeted in August.

Trump has touted his financial support for farmers, but administration officials have said little publicly about internal consternation over the process. 

White House aides are for the first time pressing Congress to increase how much the administration can distribute through the farm bailout before hitting the program’s legal spending limit this fall — even though farmers have been promised billions in additional bailout funding.

Trump has said the bailouts are necessary to protect American farmers targeted by China for economic retaliation in the widening trade war, as China has responded to Trump’s trade moves with high tariffs on U.S. agricultural exports.

Trump has promised funding in two different tranches. The first, announced in July 2018, included $12 billion, and at least two-thirds of that has been distributed. The administration announced this May that it will award an additional $16 billion in payments to farmers in a second round of bailouts, as Trump prepares for his 2020 presidential reelection bid, which centers on crucial Midwest states with large agricultural sectors. 

More than $2 billion of that second bailout has gone out, the department said.

The bulk of both bailouts consists of direct checks sent to farmers intended to compensate their losses from the trade war. There is little precedent for an open-ended farmer bailout of this nature.

“It was obvious they were stretching their legal authority,” said one Agriculture Department official of the administration.

[Trump administration reveals details of $16 billion farm bailout in U.S. trade war]

Even some officials who believe the bailout is legally sound worry about its scope and the speed with which it is being implemented. “They’re doing it really fast and shorthanded,” said a former USDA official who spent several decades involved in reviewing new department regulations but left the government earlier this year. “The agencies implementing it are stretched thin, and there’s immense political pressure to get the money out quick.”

Several officials in the USDA and other government agencies defended the bailout, noting independent legal experts agree that the administration has wide authority to unilaterally act to help the nation’s farmers in a time of crisis. Trump has also argued the farm bailout is justified by China’s trade tactics as a way to ensure the United States extracts concessions from that country.

In a statement to The Washington Post, the Agriculture Department acknowledged OMB had raised concerns as part of its “normal clearance process” and said that OMB cleared the package before it was published in the Federal Register. The statement also said OMB has no outstanding requests about the bailout and that both bailout programs have been deemed legal by department attorneys.

The USDA said multiple agencies within the department helped develop and implement the bailout program.

“Both programs were approved by the USDA Office of the General Counsel for legal sufficiency, as well as our federal counterparts through the interagency review process,” the USDA statement said of the two rounds of bailout payments. “The regulatory clearance process for all proposed major regulations encourages a robust review of proposals and alternative options.”

An additional USDA statement added: “As with all Presidential priorities, USDA worked to establish this program in a timely, efficient, thorough, and legal manner. USDA’s payments are made in accordance with published regulations and existing procedures.”

Trump has taken a political gamble in his trade war with China, a battle that shows no signs of relenting after a summer in which the world’s biggest economic superpowers continued trading blows that spooked markets and risked sparking a global economic slowdown.

Trump has said the trade war is necessary to counter anticompetitive Chinese economic measures, but leaned on the bailout to help mitigate the consequences with farmers in the Midwest as he gears up for reelection. 

China’s retaliatory actions helped force thousands of American farmers to or over the financial brink, leading the administration to start the bailout program. Net farm income has fallen by nearly half over the past five years, from $123 billion to $63 billion.

Close to three in 10 farmers feel the bailout payments will “not at all” make up for losses related to the tariff battle in 2019, according to an index calculated by Purdue University released this month. But about 70 percent said the bailout would either “completely or somewhat relieve” their concerns about the tariffs.

The bailout — criticized as disproportionately rewarding white and wealthy farmers, as well as some foreign-owned conglomerates — could face new scrutiny as the administration seeks to continue to rely on it.

“The Secretary really does have very broad authority to step in and address situations that come up, without having to send it back to Congress,” said Susan Schneider, an agricultural law professor at the University of Arkansas School of Law. “But it’s designed to deal with something that comes up quickly, that Congress does not have time to address. Its use becomes more questionable when it becomes standard policy.”

The Commodity Credit Corporation was occasionally used to fund smaller programs to help farmers, including by the Obama administration, but it has never been used in the fashion the White House has operated it, said Joe Glauber, senior research fellow at the International Food Policy Research Institute, a think tank, and former chief economist of USDA under presidents George W. Bush and Obama.

Some experts worry the multibillion-dollar payouts could create a dangerous precedent ripe for exploitation by future administrations.

“This is an incredible amount of money and sets a terrible precedent,” Glauber said, adding that while he is not an attorney, he does not think the program is being administered illegally. “What’s unusual is the magnitude: It’s just enormous.”

Asked to identify a precedent for the bailout program, the USDA pointed to a 2016 program created under President Barack Obama that helped compensate cotton producers to offset their cotton ginning costs. That program cost $216 million in 2018, according to the Congressional Budget Office, a fraction of the Trump administration’s bailout expected to cost nearly to $30 billion.

Robert Johansson, the chief economist at the USDA, also defended the program, noting it could be explicitly curbed by Congress.

“There’s always the ability of Congress to decide this use of the discretion is not what they intended, and they can change the law accordingly,” Johansson said in an interview. “Another check on the system is OMB, which always has to weigh the costs and the benefits of the program.”

Neil Hamilton, former director of the Drake Agricultural Law Center, said the administration was clearly using the Commodity Credit Corporation far beyond its historical function, although he declined to address the legality of the program.

“They’re essentially using it as a political slush fund to backfill for the cost they’re imposing on agriculture through the trade war. Historically, that’s not been its purpose,” Hamilton said of the CCC. “Congress never said, ‘Go spend $28 billion trying to make people whole because of this trade war you created. . . . That’s just something they have cooked up.”

Questions around the program’s design may become increasingly urgent as the administration needs Congress’s approval for bailout funding for the first time. The Commodity Credit Corporation is expected to hit its $30 billion borrowing limit sometime after Oct. 1, according to an administration request for budget increases first reported by Roll Call.

If Congress does not provide the additional funding in time, the administration warned in its letter to lawmakers, CCC “would have to stop making payments . . . posing a serious risk for the farmers and ranchers supported by these programs.”

It is unclear how the divided Congress plans to proceed. Glauber, of the Food Policy Research Institute, said that unlike other some unilateral actions taken by the administration, there hasn’t been large-scale efforts to challenge the administration’s bailout, easing pressure on Congress to step in.

“Congress likes being off the hook, since now they don’t have to take action; the farmers are happy, because they get a lot of money; the administration doesn’t have to worry as much about the fallout of the trade war,” Glauber said. “The magnitude of these payments is such that there should be much greater scrutiny. But there’s no one guarding the taxpayer here.”