What Would it Mean for American Farmers
The United States farm economy is plummeting. Net income numbers used to determine overall profitability in the sector are expected to continue their decline into next year. American farmers have gotten hit from all sides. Between inflated operational costs, low commodities prices, and lower government payments, it's getting tougher for small and medium sized farms to keep production going. An election year is adding to the strain as farm families contemplate how increased tariffs would affect their bank accounts.
The concept of free trade has morphed over the last decade and no matter which party you are inclined to support, tariffs are part of the agenda. There are always trade offs when implementing policy that includes levies. In the case of a potential 60% tariff imposed on Chinese imports, former President Trump’s pledge should he be elected, the trade off could be protection from cheap Chinese products for the loss of a market that purchases 18% of our agricultural exports. In 2022, China purchased $38 billion of U.S. agricultural exports. That fell to $28 billion last year, and year-to-date is only $13 billion (USDA, GATS).
While there is no magic formula to tell us how a 60% tariff would impact trade relationships with China in the short term or what the long term impact of a policy like this could do for or to our agricultural economy, farmers can’t help but worry over losing a significant market.
Past Tariffs Shed Light on Future Trade
Between 2018 and 2019, when tariffs between China and the U.S. were first implemented, American agriculture producers lost at least $27 billion in exports as multiple countries retaliated with their own trade tariffs aimed directly at ag. A 60% tariff increase on Chinese goods is expected to impact upwards of $2 trillion in trade. There’s no way to know how China or other countries would respond to tariffs at that percentage, but using the past to speculate shows that agriculture could get caught in the crossfire.
U.S. soybeans, beef and pork are already considered expensive products compared with global competitors. China imports more soybeans than any other country, they have traditionally relied on pork imports, and they have seen an increased domestic demand for beef. American farmers fear continued trade wars could diminish these markets even further. A nation that accounts for 18% of agriculture’s trade is hard to replace. There isn’t another market that size. Offsetting losses could require a lot of new smaller trade deals.
Can Tariffs Support Agriculture?
Tariffs cause price increases. There is no way around it. American based companies reliant on imports coming from China will have three choices when it comes to accommodating these levies. They will either have to move foreign production back to the United States, reroute supply chains, or pay the tariffs.
There is a general worry that more tariffs favor big companies who have the financial capacity to pay them, even in the ag sector. At some point those additional costs have to be offset by the consumer. Even if a part of the goal of increasing tariffs is to rebuild domestic production of agricultural goods, the domestic market needed protection from higher price imports. Local production is more expensive and that is the new price consumers will pay. From that perspective it’s hard not to see an escalated trade war as a big loss for agriculture.
On the other hand, if trade dynamics are unchanged, when the new tariffs are applied they will generate $400 billion in net revenue over the next ten years. Those billions of dollars would, in theory, be used to build new ag markets both domestically and abroad. The funds could also be used to support farm families who bear the brunt of the trade war, however in the past little money was used for these causes. In the long run, the tariffs may create more jobs that pay higher wages. Does this offset the higher consumer prices and unemployment in export dependent sectors?
But, $400 billion is an optimistic number built around the idea that trade between the two nations won’t change much other than the increased tariffs. In reality, China could opt to purchase more beef, pork, and grains from South America and decrease deals with the United States. . They could increase tariffs on these imported commodities. A combination of these scenarios is likely which would make an intensified trade war seem risky. Ideally, some revenue would be generated through these levies alternatively, the United States could be out $50 billion in the next decade between lost markets and increased tariffs from China.
Since 2018 an increasing number of countries have made policy decisions to keep China from flooding markets with cheaper products. There is some speculation that 60% tariffs will never become a reality. Interestingly, the tariffs have remained in place and even broadened in scope in the last seven years. This suggests that at the very least the U.S. will continue on the path of building a trade barrier between the two nations; and it seems it will be done with more global support than it received in 2018.
If we’re talking about economic security and ensuring that China doesn’t hold too much sway over our agricultural production and supply chains then tariffs create a protective barrier. An increase to 60% tariffs could reignite the trade war and cause a rapid decoupling of the Chinese and American economies, the fallout from this is difficult to forecast.
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