Agricultural exports to China have shuttered since this tariff tit-for-tat started in April, and as the reality of the Trade War 2.0 plays out, the latest Ag Economists’ Monthly Monitor uncovered the potential impact, both positive and negative.
Tariffs from both countries are high, but when it comes to agriculture, tariffs U.S. cotton are as high as 140%. The tariffs are 172% on U.S. pork and pork variety meat and over 150% on soybeans. There’s talk China is already hurting from the trade war and “quietly” exempting nearly 25% of all U.S. imports from tariffs, but no details have officially been released.
Until then, the trade war continues, and the bigger question now is if the U.S. can reduce its reliance on China.
- 83% of economists think it can
- 76% say the U.S. can function without imports from China
The 83% of economists who think the U.S. can reduce its reliance on China say:
- “There’s always the opportunity to reduce reliance on another nation, but it will take time and could be painful.”
- “By virtue of tariffs so high, the U.S. farmer has no choice.”
- “We can probably reduce our reliance, but we will be worse off.”
- “Ignoring comparative advantage is inefficient, and the U.S. should look to expand markets elsewhere in Southeast Asia.”
For the other 17% of economists who don’t think the U.S. can cut back on China, the reasons were pointed:
- “China is such a significant buyer that the loss of China as a key importer just cannot be replaced by other markets in the near term.”
- “Any reduction in reliance will be small. That train has left the station.”
One area where U.S. ag relies heavily on China is for ingredients used in herbicides and other chemistries in the U.S.
“There are too many inputs imported from China to effectively replace them all, even in the long run. The strategy of reducing reliance on Chinese imports is misguided,” one economist said.
Potential for High Rewards
The stakes are high, but the upside potential of a trade deal with China could be monumental. Sixty-one percent of ag economists think China and the U.S. will reach an agreement to revisit the Phase One trade agreement.
That deal, which was struck by the previous Trump administration, committed China to purchase an additional $200 billion in U.S. ag products over the next two years.
China didn’t complete the promised purchases after Trump lost the election, but made massive corn buys in 2020, including the biggest single-day U.S. corn purchase on record in July 2020.
Since then, Brazil has gained ground and displaced the U.S. as the top corn exporter in 2023. Economists believe it won’t be the U.S. benefiting from this trade turbulence, but instead these competitors:
- Brazil (76% of responses)
- China (12% of responses)
- India (6% of responses)
- Ukraine (6% of responses)
None of the economists said the U.S.
Which Commodity Gains the Most?
As some economists say nobody wins in a trade war, others say some areas can benefit:
- “All sectors if we can get a trade agreement that forces China to buy.”
- “Specialty crop producers who may be insulated from competition from Latin America in the domestic market.”
- “In the longer run, the trade war could be beneficial to livestock producers if gains can be made with increased access to European markets and even Australia.”
- “Biofuels are an area with ground to gain.”
- “Cotton, as that sector has seen a significant negative influence of global trade shifts.”
Economists were also asked what the best way for the ag economy to counter the long-term tariff effects is:
- Negotiate tariff rates down around the globe (47% of responses)
- Build domestic demand for U.S. ag products (32% of responses)
In terms of how long it would take to restore American manufacturing, 47% responded never, 29% said 10 years and 24% said at least five years.
Bottom line: The risks are high. Unless the U.S. invests in domestic manufacturing over an extended period, the loss from exports could be a big hit to ag commodities. But if the Trump administration can gain more trade access to key countries, the rewards could be even bigger.
Your Next Reads:
Economists Fear Trade War Will Push Agriculture Deeper Into a Recession
Panic Slowly: China’s Cancellation of 12,000 Tons of U.S. Pork Sends Loud Message
