Study: Tariff-induced trade would could hurt U.S. farmers

DAILY Bites

• Checkoffs say the study points to the potential for a big drop in U.S. exports

• Both political parties are zeroing in on tariffs to address troubling Chinese trade practices.

• U.S. farmers could lose ground to Brazil and Argentina.

DAILY Discussion

A new economic study paints a troubling picture of the potential results a renewed U.S.-China trade war could have on hundreds of thousands of farmers and rural communities, showing American-imposed tariffs would come at a steep cost to U.S. producers while benefiting Brazil and Argentina.

The study, commissioned by the American Soybean Association and the National Corn Growers Association and conducted by the World Agricultural Economic and Environmental Services, shows a new trade war would result in an immediate drop in corn and soy exports to the tune of hundreds of millions of tons. As a result, Brazil and Argentina would claim the lost market share, which would be extremely difficult for American growers to reclaim in the future.

“The study highlights the dangers that come with broad tariffs on imports,” said NCGA Lead Economist Krista Swanson. “While launching widespread tariffs may seem like an effective tool, they can boomerang and cause unintended consequences. Our first goal should be to avoid unnecessary harm.”

Cautioning against a trade war

ASA Chief Economist Scott Gerlt said, “The U.S. agriculture sector is going through a significant economic downturn. This work shows that a trade war would easily compound the adverse conditions that are placing financial stress on farmers. Even when a trade war officially ends, the loss of market share can be permanent.”

The third-party study comes as U.S. lawmakers and officials from both political parties are increasingly looking at tariff-forward approaches as they work to address troubling Chinese trade practices.

Researchers modeled several scenarios that could play out in a new U.S.-China trade war and found a consistent outcome:

• Severe drop in U.S. exports to China. If China cancels its current waiver (from the 2020 Phase I agreement) and reverts to tariffs already on the books, U.S. soybean exports to China would, according to the study, fall 14 to 16 million metric tons annually, an average decline of 51.8% from baseline levels expected for those years. U.S. corn exports to China would fall about 2.2 million metric tons annually, an average decline of 84.3% from the baseline expectation.
• Brazil and Argentina would benefit. Brazil and Argentina would increase exports and thus gain valuable global market share. Chinese tariffs on soybeans and corn from the U.S. — but not Brazil — would provide incentive for Brazilian farmers to expand production area even more rapidly than baseline growth.
• No place to turn. While it is possible to divert exports to other nations, the study found there is insufficient demand from the rest of the world to offset the major loss of soybean exports to China to support the farmgate value.

The study found that trade war would lead to a steep drop in soy and corn prices, resulting in a ripple impact across the U.S., particularly in rural economies where farmers live, purchase inputs, use farm and personal services, and purchase household goods.

Leaders at NCGA and ASA said they believe it is in America’s economic interests to maintain a trading relationship with China, even as both governments work through trade and other concerns. They also noted that they support thoughtful consideration of the impacts tariffs and tariff retaliation could have on U.S. farms and rural communities.