How embarrassing for US farmers. How embarrassing for Republican believers in small government.

Donald Trump's administration this week unveiled US$12 billion worth of farm subsidies.

In doing so it took a bold leap back to the days of socialist inefficiency that New Zealand has pushed back against for more than 30 years.


The move, which sees the Trump administration using taxpayer money to buy milk, soy beans, pork and grain directly from farmers is the inevitable consequence of the trade war.

China has hit back with targeted tariffs in ways that hurt US farmers in key battleground states.

To deliver the subsidy directly to effected farmers Trump has reactivated something called Commodity Credit Corp - a federal agency set up during the Great Depression.

To be fair, the move has provoked the ire of many Republican senators - in a way that has been conspicuously absent from the debate in other controversial areas.

"This administration's tariffs and bailouts aren't going to make America great again, they're just going to make it 1929 again, " said Senator Ben Sasse, a Nebraska Republican.

"My thoughts are the thoughts of farmers. They want trade, not aid. It's really just that simple," said Senator Ron Johnson, a Republican from Wisconsin.

"You have a terrible policy that sends farmers to the poorhouse, and then you put them on welfare, and we borrow the money from other countries," said Republican Senator Bob Corker of Tennessee. "It's hard to believe there isn't an outright revolt right now in Congress over what is happening."

It looks like the implementation of a Soviet-style agricultural policy might finally have been a step too far for some.


I'm being a bit facetious here of course.

Farm subsidies for some specific sectors have lingered in the US, as they have in Europe for decades.

But before Trump blundered in to the trade arena they were in decline and globally trade policy was headed in the right direction.

Time magazine reports that US subsidies had fallen to the lowest level since 1997.

It also notes the last time the US Government deployed an emergency subsidy programme was in 2012, although that was to mitigate an extreme drought and it was only $170 million.

And it was deployed by Barack Obama, who we all know was a communist sympathiser.


Yes … being facetious again.

But the point is that this latest policy move highlights – again - that Trump has no allegiance to any coherent economic theory.

Some of his supporters find that refreshing. Fair enough.

But the hypocrisy of supporters who claim to be fiscally conservative knows no bounds.

New Zealand is generally considered politically to the left of the US.

Most National Party policy sits comfortably within the political boundaries of the US Democratic Party in so much as it retains support for public health care and social welfare.


Yet on trade policy the US Federal Government now sits to the left of the broad political consensus in this country.

Yes – as greenies are quick to point out - there is an element of indirect subsidy in our state funding of biosecurity, environmental protection and marketing.

But we all agree that if farmers can't sell their milk it is not up to the Government to buy it with taxpayer money.

Doing so distorts markets. It creates oversupply which further suppresses prices making it increasingly hard for producers to survive on their own.

Business needs to make real profits to generate the tax that politicians spend.

If it doesn't then the Government goes broke - as New Zealand found out in the early 1980s.


The US has much deeper pockets than us and more capacity to stretch debt limits.

But it already runs multi-trillion-dollar deficits and its capacity to keep doing that is dwindling.

The Trump administration has pitched these subsidies as temporary, a short-term measure until the US wins his trade war - something the President has tweeted will be "easy".

Others aren't so sure.

"There will never be enough money to solve the problem of American farm goods," said Republican Senator Jerry Moran from Kansas about the Federal welfare.

US economist Professor Laurence Kotlikoff has argued the only way to address its massive deficits will be to raise real revenue – which will mean astronomical tax rates if the US stays on its current path.


"It's another way of saying that the country is broke," he told me in February.

"We're heading the way the British Empire went, it's inevitable," said Kotlikoff, who was named by The Economist as one of the world's 25 most influential economists. "The [US] dollar is going to give way to the Yuan as the global currency at some point, it's just a matter of time."

Trump will claiming some success over the trade truce that was brokered with the EU this week.

Perhaps he'll also achieve a landmark deal which sees the Chinese back down and it will all end in a brave new world of US trade expansion.

China's big moves to stimulate its own economy this week (albeit with slightly more sophisticated changes to financial regulations) suggest otherwise.

Meanwhile the rest of the world's exporters can only watch on and hope the market-distorting fallout doesn't do too much damage to their exports.