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AG ECONOMISTS PROVIDE AN IN-DEPTH LOOK AT HOW TARIFFS IMPACT U.S. AGRICULTURAL PRODUCERS
Sep. 16, 2024
By Sandro Steinbach, Yasin Yildirim and Carlos Zurita, Department of Agribusiness and Applied Economics, North Dakota State University
Protectionist policies are once again threatening to reshape agricultural trade, as the U.S. administration escalated tariffs on Chinese electric vehicles (EV) in May 2024, echoing the actions of its predecessor. Presidential hopefuls have taken this a step further, advocating for increased tariffs on Chinese products and those from other countries. Meanwhile, U.S. lawmakers are also considering revoking China's Permanent Normal Trade Relations (PNTR) status--a move that has already been applied to countries like Cuba and North Korea. This action would trigger even higher tariffs on Chinese imports, escalating tensions further. These policy shifts are reminiscent of past actions that led to significant retaliatory measures from China and other countries, severely impacting U.S. agricultural exports. The agricultural sector, particularly commodities such as soybeans, corn, beef, and wheat, bore the brunt of this trade retaliation. Considering these developments, we examine the potential economic effects of three U.S. trade policy scenarios on these critical commodities for the American Heartland.
Background and Scenarios
Over the past eight years, concerns about unfair competition and national security related to imports from China have increasingly shaped U.S. trade policy. Lawmakers have expressed growing alarm over China's trade practices, which they argue undermine American industries and pose substantial threats to national security. These concerns have led to renewed calls to revoke China's PNTR status, which would significantly increase tariffs on all Chinese imports. Such a shift would dramatically escalate the ongoing trade tensions between the two nations, potentially leading to widespread economic repercussions. In May 2024, the White House took a decisive step by imposing new tariffs on a range of Chinese products, including critical sectors such as electric vehicles and semiconductors (The White House, 2024). This action, reminiscent of previous administration policies, reflects a broader trend toward protectionism in U.S. trade policy. Presidential candidates have echoed this sentiment, proposing even more aggressive measures, including broad-based tariff increases on all U.S. imports (The Republican National Committee, 2024). These developments signal a potential return to the intense trade conflicts of recent years, with far-reaching implications for U.S. agriculture.
Historically, U.S. trade policies that target China have triggered swift and severe retaliatory measures from Beijing. The 2018-2019 trade conflict is a prime example, where China responded to U.S. tariffs with significant retaliatory tariffs on American agricultural products (Carter & Steinbach, 2020). This response had a major impact on U.S. agriculture, particularly in the Midwest, where the economy heavily depends on agricultural exports. The soybean industry sets a noteworthy example, as it relies heavily on the Chinese market. Reduced demand from China led to lower export prices and increased competition from other countries, most notably Brazil. The consequences were severe, with many U.S. farmers facing significant financial losses. The potential for a repeat of these events is now a primary concern for the U.S. agricultural sector. As new trade policies are proposed, the risk of further retaliatory tariffs looms large, threatening to disrupt markets again and cause substantial economic harm to U.S. agriculture.
The proposed U.S. trade policies under consideration could have profound implications for the agricultural sector, particularly if they provoke retaliatory tariffs from China. To understand the potential impacts, we consider three primary scenarios that reflect varying levels of tariff increases and corresponding retaliatory measures, as summarized in Table 1. In the first scenario, the U.S. Executive Branch imposed a 17.5% to 75% increase in import tariffs on select Chinese goods, including steel, aluminum, semiconductors, and EVs. In retaliation, China responds with a 20% tariff increase on U.S. agricultural products. This scenario assumes that no other countries will engage in retaliatory actions, making it a bilateral conflict between the U.S. and China. The second scenario advocated by the Republican presidential candidate is more complex and is divided into two sub-scenarios. Scenario 2.a involves the U.S. imposing a 10% tariff increase on all goods from all countries, prompting a global retaliatory response with similar tariff increases on U.S. agricultural exports. Scenario 2.b escalates the situation further, with a 60% tariff increase on Chinese goods and a 10% increase on goods from other countries, leading to severe global trade disruptions.
The third scenario presents a slightly different approach, focusing on the potential revocation of China's PNTR status by the U.S. Congress. This action would result in a 9.5% increase in U.S. tariffs on Chinese agricultural goods, with China likely responding with an equivalent 9.5% tariff increase on U.S. agricultural exports in a tit-for-tat scenario. Unlike the previous scenarios, this one does not involve broader global retaliation, instead concentrating on the bilateral trade relationship between the U.S. and China. Each scenario in our analysis provides a detailed framework for estimating the potential export losses U.S. agriculture might face, particularly focusing on key commodities such as soybeans, corn, beef, and wheat. Understanding the scale and distribution of these potential impacts can help inform strategies to mitigate the adverse effects of these brewing trade disputes.
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