Tariffs are a tool used by President Donald Trump during both his terms. But do they work? Not even ag economists are in alignment, as the answer seems to be: It depends.
This past weekend, Trump signed three executive orders for tariffs, the first time a president has used powers granted under the International Emergency Economic Powers Act of 1977. The orders also include retaliation clauses that would ramp up tariffs if the countries respond in kind. Trump cut the levy on imports of Canadian energy to 10%.
By Monday morning, Trump had agreed to delay tariffs on goods from Mexico for one month to allow more time for negotiations. The agreement happened just hours before the tariffs were set to take effect.
President Claudia Sheinbaum said U.S. tariffs against Mexico will be delayed for one month after a conversation with Trump on Monday. Trump then confirmed the news on Truth Social.
Which Input Could Be Impacted Most by Tariffs?
Tariffs on the U.S.'s top three trading partners could have a major impact on agriculture. The January Ag Economists’ Monthly Monitor asked economists which input is most at risk. The top answer was fertilizer.
“From a headline standpoint, it’s probably potash,” says Samuel Taylor, farm inputs analyst, Rabobank. “We get 85% to 90% of our potash from imports from the Canadian market. The residual is made up by Russia and Israel, in principle, with some other markets coming in.”
One day after Trump announced he would move ahead with planned tariffs, Prime Minister Justin Trudeau stated tariffs targeting $30 billion in American products, such as alcohol, produce, household goods and industrial materials, will roll out in two phases starting Feb. 4, the same day the U.S. tariffs are set to begin.
The tariffs on the other $125 billion worth of goods will come in 21 days to allow impacted Canadian companies to adjust their supply chains. Trudeau emphasized Canada’s response would be “strong but appropriate,” while also considering non-tariff measures such as restrictions on critical minerals.
Do Tariffs Work?
With tariffs and a potential trade war brewing that begs the question: Do tariffs work?
It’s something Farm Journal asked the nearly 70 ag economists part of the Farm Journal Ag Economists’ Monthly Monitor. The survey asked economists: “Do tariffs work in trade policy?” Economists views were mixed:
- “Tariffs can work in trade policy — that’s why nations continue to use them. The complex part that extends beyond the tariff action is potential long-term repercussions that can result from trade flow changes.”
- “In limited cases, typically only if they result in a policy response in the targeted country. Much of the time, tariffs are like cutting off one’s nose to spite one’s face.”
- “Tariffs provide short-term gains but have always failed relative to free trade in the long term.”
- “Absolutely, when properly applied.”
- “Not over the long term. They tend to affect who gets to supply different markets around the world.”
The Ag Economists’ Monthly Monitor also asked: “When tariffs are used as a ‘tool’ in trade, who pays the tariff?” Not all economists were aligned on that answer either, saying sometimes it’s farmers and consumers, but it can also be the exporting countries.
- “When the U.S. imposes tariffs on imports, importers in the U.S. pay taxes to the U.S. government on their purchases from abroad. When another nation imposes tariffs, importers in that nation pay import taxes to their government on their purchases from abroad. Often, when a tariff is implemented, another nation retaliates, and you end up with importers in both nations paying the price on whatever products the tariffs apply toward.”
- “If an importing country places a tariff on the exporting country, producers in the exporting country and consumers in the importing country both lose (i.e., receive lower and higher prices, respectively). Conversely, producers in the importing country and consumers in the exporting country win (i.e., receive higher and lower prices, respectively).”
- “In the short run, consumers who purchase goods with a tariff might see higher prices if the tariff is not absorbed elsewhere. In the long run, the tariff might result in changes to the supply chain that result in higher prices but also create other economic opportunities in America (e.g. reshoring of domestic manufacturing).”
- “The correct economist answer is: It depends. Tariffs drive a wedge between prices in the exporting country and in the importing country. It depends on the circumstances of particular markets and how much is reflected in higher prices in the importing country and reduced prices in the exporting country.”
- “Both the exporting nation and the importing consumer pay some portion of the tariff depending on who has more flexibility to adjust to trade barrier. If exporting countries can easily switch to supplying other markets, they won’t have to ‘pay.’ If consumers can easily find cheap substitute goods, they won’t have to pay.”
