Trade is often discussed in terms of international trade. While this can be a complex topic, one does not need a PhD in economics to understand how it works. International trade occurs when two or more countries exchange goods. But why does this happen? This calls for a discussion of comparative advantage. Let’s say two countries, A and B, produce wheat and beef. In one day, country A can produce 100 bushels of wheat and 50 pounds of beef. Meanwhile, country B can produce 50 bushels of wheat and 100 pounds of beef. Both countries can enter into a trade agreement to utilize their advantages; country A would send a certain amount of wheat to country B in exchange for a certain amount of beef. With this trade agreement, both countries can focus their production on the goods they excel at producing. 

International trade has existed in some form for centuries. The Silk Road is one of the earliest examples of trade between nations, consisting of a series of caravan routes that linked China and other civilizations of the Far East with countries in Europe. Goods such as gold and wool traveled East, while silk and spices were sent West. However, our modern understanding of international trade emerged after World War II. Beginning in the mid-to-late 1940s, several agreements were enacted to promote trade between countries, many of which were free trade agreements.

Free trade agreements are the main type of trade agreements that are used in the present day. These types of agreements are characterized by little to no barriers to trade between the countries party to the agreement. For example, in a free trade agreement between country A and country B, both sides may not impose a tariff on goods coming from the other. A tariff is a tax on goods imported (brought in) or exported (sent out). In the free trade example above, country A would not tariff beef imported from country B. Other types of trade barriers can be covered under a free trade agreement, but tariffs are the most common type. 

There are various types of free trade agreements. The example mentioned earlier is a bilateral agreement, which is made between two countries. There can also be free trade areas, typically among countries within the same geographic region. For instance, the United States-Mexico-Canada Agreement (USMCA) went into effect in 2020 and serves as a free trade agreement between the three major economies in North America, replacing the North American Free Trade Agreement (NAFTA) from the 1990s. Another type of free trade agreement is a customs union. A customs union resembles a free trade area but goes further by having a standard trade policy that all member countries must follow. Customs unions can also encompass other aspects, such as the free movement of people or a common currency. A notable example of a customs union is the European Union (EU). EU members have no tariffs on goods from other EU countries and may permit unrestricted movement across their borders with fellow EU members while using the Euro as their currency. 

As mentioned at the beginning of this post, the agriculture industry in the United States relies on international trade to support various sectors of the industry. A recent article published in Farmdoc Daily examined the current state of agricultural trade in the U.S. The article revealed that the value of all agricultural imports and exports in the U.S. amounted to approximately $215 billion, with imports surpassing exports. This gap between imports and exports is driven by an increased importation of horticultural products, including fruits, vegetables, and tree nuts. In recent years, the imported goods that have experienced the most significant increase include bananas, strawberries, and avocados. Canada, the European Union, and Mexico are the largest sources of agricultural goods entering the U.S. Conversely, U.S. agricultural exports reached a value of $196.8 billion in 2020, with China, Canada, and Mexico being the top three destinations. Canada and Mexico are leading importers and exporters due to their proximity to the U.S., with the USMCA helping to facilitate free trade among all three countries. 

The article notes that the export of corn and soybeans is vital for the U.S. and states across the Midwest. With Illinois being a leading state in corn and soybean production, the export of these two commodities is essential for producers in Illinois. The U.S. competes with Brazil when it comes to exporting soybeans, with China being a primary customer for soybeans from both countries. The article reports that 52% of all U.S. soybean exports and 73% of all Brazilian soybean exports are sent to China due to increased meat consumption in China. The share of U.S. soybeans exported to China was around 60% before 2018 and dipped to 18% in 2018 due to the trade war between the U.S. and China. On the other hand, the share of U.S. corn exported to other countries is substantially lower, with only 16% of corn produced in the U.S. being exported in 2024. This number has been trending below a peak of 20% in the early-to-mid 1990s. Mexico and Japan are the two largest importers of U.S. corn, with China beginning to accept imports of U.S. corn in 2020. While the U.S. is the largest supplier of corn in the global market, Brazil has started to produce more corn and compete with the U.S. 

This first part of a two-part blog series examines the current landscape of agricultural trade and its significance to the U.S. agricultural industry. After exploring what trade and free trade agreements entail and assessing the current impact of trade on agricultural production in the U.S., we will transition to a more extensive discussion of tariffs and their influence on trade in part two. While tariffs are a common tool in international trade, their effects can resonate throughout a country’s economy. 

For further reading, visit the following links:

• International Trade (International Monetary Fund): https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Trade
• The Silk Road (Encyclopedia Britannica): https://www.britannica.com/topic/Silk-Road-trade-route
• United States-Mexico-Canada Agreement (Office of the U.S. Trade Representative): https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement
• Customs Unions (European Union): https://trade.ec.europa.eu/access-to-markets/en/content/customs-unions
• U.S. Agricultural Trade Background (Farmdoc Daily): https://farmdocdaily.illinois.edu/2025/01/us-agricultural-trade-background-given-potential-tariffs.html.