By Josh Zumbrun 

WASHINGTON -- The Trump administration said it would spend $16 billion to offset the impact on American agriculture from the trade conflict with China, with most of the money taking the form of direct payments to U.S. farmers.

The move Thursday followed a breakdown in talks earlier this month between Washington and Beijing. Amid expectations that American farmers will be hindered selling crops to China's 1.4 billion-person market, commodity prices, which were already mired in a years-long slump, sank further to their lowest level in more than 10 years.

President Trump directed the U.S. Department of Agriculture to create the program "because he knew farmers would bear the brunt of this lack of trade deal with China once again," said Agriculture Secretary Sonny Perdue. "Farmers themselves will tell you they'd rather have trade than aid," he said, but in the absence of a deal "they'll need some support."

The program echoes a 2018 initiative that authorized $12 billion in funding. In first tweeting the idea this year, Mr. Trump had proposed a program to use tariff revenue to buy crops and distribute them internationally for humanitarian purposes. The USDA program announced Thursday won't use tariff revenue directly, nor will it have an international humanitarian component.

The money for the initiative will be drawn from a farm-support account controlled by the USDA and as such won't require fresh congressional approval.

The announcement marks the second move in the past week by the administration to soften the blow on U.S. farmers from trade-conflict impacts.

On Friday, the Trump administration struck a deal with Canada and Mexico, in which the U.S. agreed to drop the steel and aluminum tariffs imposed a year ago. In exchange, Canada and Mexico dropped their retaliatory tariffs on about $15 billion of U.S. goods, which had fallen heavily on agriculture.

Some farm groups cheered the new aid package, saying it would help cushion the blow.

"We thank President Trump for recognizing that our patriot farmers have borne the brunt of China's trade retaliation," said David Herring, a North Carolina pork producer and president of the National Pork Producers Council.

Mr. Herring said U.S. pork producers were also anxious to re-open trade with China to take advantage of an "historic sales opportunity," referring to the deadly virus that has decimated China's hog herds and prompted buyers there to purchase more meat from U.S. producers.

Direct payments to farmers are the main basis of the new program as they were last year.

In last year's program, farmers received a differing payment for different crops. Under this year's program, the money will be distributed based on USDA's estimate of the economic damage inflicted on different counties. The payment will differ county-by-county and will be based on the number of acres planted, not the specific crop.

The new program will include payments to farmers of a variety of products, from soybeans, sorghum, wheat and rice to pork and dairy. Although the effort is aimed at offsetting the damage from trade tensions, it also will be a welcome reprieve to farmers beset by high debt levels incurred earlier this decade when prices were higher, record flooding across much of the Midwest and growing competition from other agricultural powerhouses such as Russia and Brazil.

In response to the U.S. imposing 25% tariffs on roughly $250 billion of Chinese imports over the past year, Beijing has imposed tariffs on agricultural products, and state-controlled companies in China largely halted buying U.S. farm goods.

The result has been climbing commodity prices for other parts of the world -- Brazil in particular has capitalized by selling soybeans to China -- but plunging prices in the U.S. market. The S&P GSCI Agricultural Commodities hit its lowest level last week in more than 10 years.

Soybeans are the biggest crop export to China. Before the conflict, the U.S. shipped $10 billion to $12 billion a year of soybeans to China; over the past year, that has fallen to about $2 billion.

Mr. Trump has suggested that the administration is using tariff revenue to pay for the farm-aid program, but the actual source of funding would be a program known as the Commodity Credit Corporation.

"Legally, you can't direct tariff payments into agriculture," said Mr. Perdue, but "the president feels like China is paying for this program" via the collection of tariff revenue.

"Tariff money won't go directly to this program but it goes indirectly by going into the Treasury," he said.

The CCC is a Depression-era institution, created in 1933 and controlled by the Agriculture Department, which has the standing authority to draw $30 billion a year from the U.S. Treasury and spend it on programs that support American farmers. Because of its standing authority, no special congressional approval of the program is needed.

"USDA is unique among agencies, in having a permanent automatic $30 billion annual spending authority," said Jessica Wasserman, a partner in the international and government relations practice at Greenspoon Marder LLP. "This is why agriculture and not other sectors are given funding to counter the tariffs."

The $30 billion available to CCC programs has been fixed since 1987; the program isn't formally linked to tariff revenue in any way. Tariff revenue doesn't make the CCC's authorities larger or smaller. No funds are directly transferred from tariff collections to the Agriculture Department under the program.

When Mr. Trump directed the USDA to carry out the program he also said the U.S. would buy products "from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance."

The USDA said Thursday it wouldn't conduct any international humanitarian assistance program as part of the aid package. Mr. Perdue said that the president "learned of the inefficiency and logistical challenge" of buying crops and distributing them internationally for food aid and instead backed using the farm-aid program from last year.

--Jesse Newman contributed to this article.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com

(END) Dow Jones Newswires

May 23, 2019 14:15 ET (18:15 GMT)