Tariff positioning versus its practical effects
Lately, policymakers, in the interest of national security, have favored some degree of protectionism to shield US companies from unfair trade practices. Tariffs designed to protect domestic steel production are among the most well-known of these initiatives.
Rarely do those favoring protectionism recognize that countries targeted with tariffs invariably respond with retaliatory duties and tariffs of their own. Agribusinesses understand this truth all too well. They withstand the worst of retaliatory tariffs, due to the large share of US export volume that agricultural products represent. It’s estimated that the 2018 US tariff on steel and aluminum imports resulted in retaliatory tariffs that cost US agricultural producers $27 billion from 2018 to 2019. Disclosure 1
The tariff “bark” may be worse than the bite.
Politicians like to talk of tariffs in terms of protecting American jobs. But unlike voters, elected leaders know better than to expect much of this tough talk to reach fruition.
Countries that are subject to tariffs routinely bring disputes to the World Trade Organization (WTO) where they’re often deemed to violate international trade rules. In 2018, when the US imposed tariffs on steel and aluminum imports from several countries, the exporting countries initiated a dispute. Unsurprisingly, WTO arbiters ruled that the US tariffs were inconsistent with global trade agreements.
Even when importing countries do manage to implement tariffs, and global trade policy becomes combative, the effects can be transient. While China’s retaliation to 2018 US tariffs led to a large drop in US agricultural exports to China, the volume has rebounded to a large degree.
In addition, the US government often provides financial aid to food producers to help them weather any trade retaliation. US farmers received $23 billion through the USDA’s Market Facilitation Program in 2018 and 2019 to offset export losses resulting from retaliatory tariffs.Disclosure 2
Tariffs are one of many global demand controls.
Even with WTO disputes, government subsidies, and the softening effects of time, tariffs do have an impact on US agriculture—and producers should expect to continue feeling their effects. That said, other dynamics could be more influential in shaping demand.
Though the US and China may opt to escalate their tariff tit-for-tat game, it plays a relatively minor role in the bigger agricultural trade picture. China’s slowing economy and aging population are already reducing US exports of soybeans and corn. An oversupply of grain in China has driven the country’s orders for US soy down dramatically. As of mid-September, orders for the 2024-2025 season were at one of their lowest points in 16 years.Disclosure 3
Tense relations between the two countries are also spurring strategic moves—actions with long-term impacts that are likely to lower trade volumes and minimize mutual dependency. China is intent on ramping up efficiency in domestic agricultural production and investing in the development of Brazilian farmland for corn, soy, and wheat production.
Producers have more to watch than tariffs.
Tariff considerations aside, farmers have plenty of other concerns to keep an eye on this fall. Policy differences around fossil fuels and climate change could meaningfully affect the price of key inputs like fuel and fertilizer. The same issues could impact biofuels, and alternative fuels that are based in agriculture, leaving farmers who produce the inputs to these fuels to sort through ramifications of the latest energy policies. Either way, don’t expect the costs of fuel or fertilizer, or the proceeds from selling biofuel feedstock, to provide immediate relief.
And then there’s the congressional quagmire to consider. The 2018 Farm Bill expired September 30, 2024. Government support is crucial for the many farmers that are under tremendous financial strain. But with the parties divided on policies, programs, and the appropriate focus of funding, it likely won’t be until sometime in 2025 that a new bill is passed.
Agribusiness can mitigate the impact of continued tariffs.
How should agribusinesses respond to this uncertainty? Short of strategic shifts into product lines—with less exposure to potential tariff action—there’s not much that will directly reduce the impact of tariffs and other external forces. And for many companies, making those changes, if they’re possible, would take quite a bit of time.
Enhance your competitive edge by focusing on what you can control.
- Invest in AI and machine learning. Advanced digital technologies can enhance supply chain efficiency and lower costs through precise application of chemicals.
- Increase automation. Automated equipment can reduce labor costs, increase product quality, and improve productivity.
To create lasting cost reductions, increase your commitment to new technologies and adopt more efficient farming practices which benefit your agribusiness independent of tariff structures, trade policies, and fluctuating global demand scenarios.
