Bush Announces Big Hike in Grain Subsidies : Spending: Move seems to erode commitment to free trade. He also gives farmers $775 million in disaster aid.

President Bush, in a move that seemed to erode his longstanding commitment to global free trade, Wednesday announced the largest increase in government subsidies for farm exports in U.S. history, a massive boost for wheat farmers in politically crucial Midwestern states.

Campaigning in South Dakota, Bush announced that he would triple the amount of American wheat that will be covered by the federal government’s export subsidy program--raising the total to a staggering 1.1 billion bushels that the Agriculture Department said was worth about $3 billion.

Exactly what the added cost to taxpayers turns out to be will depend on world markets, but the increase is almost certain to be large. An Agriculture Department spokesman estimated the total subsidy at $1 billion. But the total impact on the budget may be less if increasing exports reduce the need for domestic price supports.

The President left no doubt about the power of incumbency when it comes to wooing blocs of voters. He also gave farmers suffering from a biblical list of disasters--including hail, floods and insects--$775 million in disaster assistance, noting that it would benefit not only hurricane-ravaged Louisiana and Florida, but Texas.

And in Ft. Worth, he told workers assembled in an aircraft hangar that the United States would permit General Dynamics to sell 150 F-16 fighter jets to Taiwan, thus saving an estimated 5,800 jobs at the aircraft plant and others among suppliers.

Analysts said the farm subsidy announcement--which conflicted with the Administration’s longstanding trade and budget policies--apparently was made for political purposes. They said the move could damage the prospects for an early conclusion of global trade negotiations. Those talks have been stalled for months by a bitter standoff over agricultural trade in which the United States has insisted that European governments cut back support for their own farmers.

European Community officials privately expressed dismay at the scale of the new U.S. farm subsidies, which are aimed at increasing U.S. exports to countries around the globe that are now largely served by heavily subsidized European farm exports. Some warned that Europe may be forced to counter with new subsidies of its own, escalating a trade war.

“The U.S. is targeting our markets, and that hasn’t gone unnoticed,” said a senior official with the European Community who asked not to be identified.

In South Dakota and Texas, Bush mixed dispensing of government aid with attacks on Democratic presidential nominee Bill Clinton.

“If Gov. Clinton gets infected with that anti-trade strain from the protectionist crowd he’s running around with, it is the American farmer that catches pneumonia, and South Dakota is going to get mighty sick,” Bush told about 300 people, most of them corn, soybean and alfalfa farmers.

At the Texas jet factory, Bush told workers that he had an announcement of importance “to you and your families.” Then, when he said that he had decided to permit the sale to proceed, he was interrupted with prolonged cheers, whistles, applause and shouts of “allll-right.”

Bush had balked at approving the sale, fearing it would damage relations with China.

Clinton praised Bush’s decision. He said he was “pleased that the President has reversed himself on the sale of F-16s to Taiwan” and promised to “move forward with the sale” if elected.

General Dynamics’ sentiments were apparent as well. A banner strung up over a mock-up of the fighter said: “Jobs for America. Thanks Mr. President.”

Bush also sought to portray his opponent as reluctant to commit himself on sensitive issues for fear of alienating key voting blocs, and he challenged Clinton to state his position on the North American Free Trade Agreement.

In the spring, when Clinton’s opponents for the Democratic presidential nomination criticized the trade pact, the Arkansas governor said he favored the agreement, which was still being negotiated. Now, he has stepped back from that endorsement, saying he will wait to see its details before committing himself.

Bush’s announcement of new farm subsidies appeared to contradict his own position on international trade and undercut months of difficult negotiations with the European Community as well.

In the past, the Administration has argued in global trade negotiations that farm subsidies around the world must be sharply reduced to promote free trade and worldwide economic growth.

As recently as July’s economic summit in Munich, Germany, Bush pushed the European Community, especially France, to slash its farm subsidies by more than 30% over the next six years in return for a similar move by the United States.

And in its midyear review of the federal budget, the White House suggested that the program that finances the grain export subsidies could eventually be eliminated to help reduce the federal deficit.

The export supports announced Wednesday will provide subsidies for sales to 28 countries that are now largely dominated either by grain from Europe, Australia, Argentina or Canada.

Still, Administration officials said the new subsidies actually mark an attempt to restart the stalled global trade talks. White House officials said the move is designed to force the Europeans back to the bargaining table so the negotiations can be concluded before the November election.

The Administration has said for weeks that it hopes the global trade talks can resume after a Sept. 20 French referendum on European economic unity.

The new U.S. subsidies “could make it easier to get the talks going, by convincing the Europeans that we are serious and that we are prepared to increase subsidies if we do not reach an agreement,” said one senior Administration official. Other White House officials also stressed that by opting for the subsidies, Bush was not abandoning hope for reaching a trade agreement, but rather was “fighting fire with fire.”

Bush, vowing to use farm subsidies “as necessary” on other crops, said: “I’m putting foreign governments on notice right here in South Dakota.” He added: “This action is aimed at those who subsidize, not at those such as Australia and others who do not subsidize.”

But critics saw different motives. They argued that Bush had at least temporarily abandoned his commitment to conclude global trade negotiations rapidly because he wants to boost his chances for reelection.

“This was clearly politically motivated . . . and it represents the first step in a trade war with Europe,” said Dan Basse, director of market research at AgResource, a Chicago research firm that follows U.S. agricultural trade policy.

“I don’t think there is any question but that this came as a result of the domestic political pressures,” added William Bailey, director of research for World Perspectives, a Washington-based agricultural trade research firm.

But while the announcement was criticized by free-trade advocates, South Dakota farmers, hurt by sagging wheat prices, hailed the boost to U.S. exports as long overdue. Much of the U.S. wheat crop, most of which was harvested in June and July, has already been sold for less than $3 a bushel, down about $1 from last year.

Pointing to the potential political impact of the export support and the disaster assistance, Warren Friessen, who farms 900 acres of alfalfa, soybeans, corn and wheat near Sioux Falls, S.D., said: “I think he needs to do that to get the farm vote.” He said he voted for Bush in 1988 and would do so again.

Gary Strathmeyer, a corn and soybean farmer, wondered why Bush had not acted sooner.

“He kind of waited until . . . he’s behind in the polls to do anything,” Strathmeyer said. He said he voted for Bush in 1988, but as for this year--”I don’t know.”

Gerstenzang reported from Ft. Worth, Risen from Washington.