The United States has instigated an aggressive global trade war that is escalating and directly harming many U.S. agricultural producers by driving up the costs of U.S. commodities in foreign countries and increasing input costs for U.S. producers and food processors.
This analysis summarizes the actions and retaliatory measures taken by the U.S. and other countries in this trade war and explores its current and expected long-term impacts on U.S. agriculture.
Given that 20 percent of all farm revenue is generated from exports, international trade is more than the difference between U.S. agriculture being in the red or being in the black.
While U.S. agriculture accounts for only one percent of U.S. GDP, countries taking retaliatory measures against U.S. tariffs on steel, aluminum, and industrially significant technologies have aimed those measures squarely at U.S. food and agriculture products. Of the $78 billion worth of U.S. exports facing retaliatory tariffs, 33 percent (nearly $26 billion) are agriculture and food products.
Over the past five months, the United States has placed tariffs on a wide range of imported goods including washing machines, solar panels, steel, aluminum and high-tech goods. Countries hit by U.S. tariffs, include China, Canada, Mexico, the EU, India and Turkey – all of whom have announced new retaliatory tariffs on U.S. food and agriculture exports.
These countries have focused on food and agriculture for two reasons—1) the U.S. food and agriculture sector is highly export-dependent – overall U.S. farmers export more than 20% of what they produce, 2) many agricultural products are perishable and cannot be stored for long periods of time; and 3) U.S. agriculture’s political power is significant.
“U.S. agriculture is always the first to get hit in a trade war,” says Brian Kuehl, principal and Federal Affairs team lead at K·Coe Isom. “The U.S. consistently runs a trade surplus so it’s very easy to retaliate against American farmers. Inflicting pain in agricultural states is a calculated strategy to draw attention to the trade policies our trading partners want to change,” says.
“These tariffs are already hammering U.S. exports and increasing equipment costs, but U.S. producers should expect more pain if these measures persist through the fall, when harvest begins and U.S. farmers may be faced with huge commodity surpluses they cannot sell at a profit,” adds Kuehl.
China’s retaliatory measures, which cover $51.8 billion of trade, include tariffs on $18.8 billion in ag and food exports, and cover major U.S. exports like soybeans, pork, beef, wine, fruits, and nuts. To put this in perspective, the United States exported a total of $19.6 billion in agricultural products to China last year, with just over $12 billion in soybeans alone.
China’s first round of retaliatory tariffs took effect April 2, 2018, and were aimed squarely at U.S. fruits, nuts, wine, spirits and pork. Fruits, nuts and wine were assessed a 15 percent duty and pork was taxed at 25 percent.
The next round of China’s tariffs, valued at $34 billion, took effect July 6, and are also concentrated on food and agriculture. Of the 545 products included, 517 of them impact food and agriculture products, adding a 25-percent tariff to each. These new tariffs focus on beef, pork, poultry, fruits, nuts, whiskey, and seafood. Approximately 80 products, including most fresh and dried fruits, tree nuts, and pork, are seeing these tariffs applied in addition to the tariffs levied on April 2, creating new retaliatory tariff rates between 40 and 50 percent, dramatically punishing sales.
Canada imposed new tariffs on food and ag products on July 1, assessing a 10-percent tariff on a range of processed agricultural products, including orange juice, prepared meals, candy (including chocolate), condiments, and bourbon, covering nearly $2.5 billion in U.S. agriculture and food exports.
Agricultural products represent 71 percent of the total retaliation imposed by Mexico, with tariffs assessed on an initial list of products June 5, including 10 percent tariffs on hams, certain cheeses, apples, potatoes, cranberries, and bourbon. On July 5, Mexico increased the tariff rates on these products to 20 percent, and 25 percent for certain cheeses, impacting roughly $2.5 billion in trade with the United States.
There is some hope that the U.S., Mexico, and Canada will reach agreement on changes to the North American Free Trade Agreement (NAFTA) in the coming weeks and that could lead to a thaw in trade relations and reversal of the tariffs imposed by the U.S., Canada, and Mexico.
The European Union placed 25-percent tariffs on rice, orange juice, cranberries, bourbon, and sweetcorn, effective June 1, impacting more than $980 million in agricultural exports from the United States.
President Trump had threatened to impose additional tariffs on European automobiles, but on July 26, he and the EU agreed to work toward resolving disputes over steel and aluminum tariffs, delay proposed car tariffs and discuss a bilateral trade deal. While President Trump announced that the EU agreed to purchase additional soybeans and negotiate on other agricultural barriers, those claims have since been disputed by the EU.
On the soybean front, it appears that market pressures will lead the EU to purchase additional U.S. soybeans but that there is not an actual commitment by the EU to purchase additional soybeans as part of any trade deal.
Ninety-nine percent of India’s retaliatory tariff measures are levied on food and agriculture, covering over $800 million in trade. India took specific aim at U.S. tree nut and apple exports, hitting almonds and walnuts with a 20-percent tariff, and apples at 25 percent. India’s measures took effect June 21.
Turkey’s retaliation on food and agriculture covers nearly $300 million in U.S. exports, including tariffs of 5 percent on nuts, 20 percent on rice, and 40 percent on whiskey (including bourbon), effective June 21.
These unprecedented and expensive trade barriers are changing the flow of trade globally in food and agriculture products, but also products on which the food industry depends, like steel, aluminum, packaging, and agriculture and food processing equipment.
While the $12 billion aid package announced by the Trump Administration will provide payments to some producers impacted by this trade war, most analysts agree that it will not offset short-term impacts and that long-term impacts to U.S. agriculture will likely be significant.
K·Coe Isom’s Federal Affairs team will continue to monitor and communicate the latest developments around trade news, and its impact on your business. Reach out to a K·Coe Isom advisor for more information about the impact of the tariff impositions on your business and for a discussion of business and tax strategies you might consider in a down market. If you would like an assessment of your current situation, click here.
For information about the benefits of free trade, and how you can take action to support beneficial trade agreements for American farms and ranches, visit farmersforfreetrade.com.