The United States is on pace yet again to amass a record trade deficit. The shortfall through the first three months of the year stood at nearly $200 billion. And that's before the surging cost of imported crude oil took effect.
The trade deficit is a politically charged issue both at home and abroad. The Bush administration, while waving the banner of freer global commerce, has been forced into unilateral trade battles with China over textiles, with Japan over beef, and with Brazil over cotton.
Those are conflicts that draw keen interest in farm country, where exports and government subsidies are the lifeblood of rural incomes. And that's why a new U.S. trade proposal put before the World Trade Organization this week is making some farm state interests nervous.
In a nutshell, the U.S. offered to cut its most trade-distorting farm subsidies by 60 percent over the next five years. It also pledged to limit some of its less trade-distorting programs.
U.S. trade officials stressed that the offer was NOT unilateral. It hinges on the European Union and Japan agreeing to cut their most trade-distorting subsidies by up to 83 percent ... and on rich and poor nations alike slashing tariffs to allow more access to foreign markets.
Just which U.S. programs would be cut under the proposal is open to debate. In WTO terminology, subsidies are identified by boxes that are given certain colors. Subsidy programs considered the most trade-distorting fall into the "amber box" and likely will be subject to the proposed 60 percent cuts. That would include all direct payments to farmers, marketing loan gains, loan deficiency payments, and some dairy and irrigation subsidies.
U.S. trade officials hope to define counter-cyclical payments ... which allow payments to farmers when prices on some commodities fall below certain levels ... as a "blue box" subsidy. That's a category of payments considered by WTO to be less trade-distorting. It's a move that will be challenged in negotiations.
Together, the reductions in U.S. amber and blue box payouts would total 53 percent of current U.S. subsidies. The demanded cut in European subsidies from the same categories would be 75 percent.
A third category -- so-called "green box" programs of research and conservation subsidies -- would be unaffected, since they are not viewed by WTO as trade-distorting. In the U.S., green box programs include the Conservation Reserve Program and the Conservation Security Program.