As mentioned in Part One, a tariff is a tax imposed by a government on goods imported to or exported from a country. The company or entity importing or exporting goods subject to a tariff must pay that tariff to complete the customs process. Let’s refer to the example from Part One involving countries A and B. Country A imports beef from Country B and exports wheat to Country B. To protect its domestic beef industry, Country A imposes a 25% tariff on any beef imported into the country. A wholesale beef distributor typically pays $100 per ton for beef from Country B. However, with the 25% import tariff, the distributor will now pay $125 per ton. Let’s take this example a step further. In reaction to Country A’s import tariff on beef, Country B imposes a 25% retaliatory tariff on all wheat imports. If an animal feed producer usually pays $50 per ton to import wheat from Country A, that producer will now have to pay $62.50 per ton. 

In both scenarios, the price of importing beef and wheat rises. Consequently, this means that the global prices of these goods will increase, along with the prices for consumers of each product. Shoppers in the grocery stores of Country A will notice a rise in the price of beef, while livestock producers in Country B will see an uptick in the cost of feed. These cost increases for producers will also impact consumers in both countries. Furthermore, imports to both nations will decline as exporters seek other markets or refrain from exporting their products altogether.

In January 2022, the USDA ERS released a report assessing the impact of the trade war that occurred from 2018 to 2019 on trade. Beginning in 2018, the U.S. government implemented tariffs on several countries and products from those countries. These included: 

• 25% tariff on all imported steel,
• 10% tariff on all imported aluminum,
• 25% tariff on over 1,300 products from China, including aircraft parts, agricultural machinery, televisions, and medical equipment. 

In response to these tariffs imposed by the United States, six countries (Canada, China, the European Union, India, Mexico, and Turkey) announced they would impose retaliatory tariffs primarily targeting U.S. agricultural goods. In reaction to the tariffs directed at Chinese goods, the Chinese government imposed tariffs on U.S. agricultural products, with U.S. pork products and soybeans subjected to 25% tariffs. The Chinese government also canceled orders for U.S. agricultural products. The USDA report found that the percentage of U.S. agricultural goods exported to the countries imposing retaliatory tariffs varied, with 98% of exports to China and 43% of exports to India affected by these tariffs. In total, the value of U.S. agricultural exports subjected to retaliatory tariffs exceeded $30 billion. Across all six countries that imposed retaliatory tariffs, U.S. exports to those nations declined, with exports to China dropping by 76%, the European Union by 42%, India by 27%, and Mexico by 20%. Overall, an estimated total of $27.2 billion worth of exports were lost due to the retaliatory measures. 

The impact of these retaliatory tariffs was felt across the entire agriculture sector in the United States. The USDA report indicated that the value of exports for major commodities dropped significantly, especially for exports to China. The value of soybean exports to China decreased by 76.5%, pork exports by 67%, corn exports by 60.5%, soybean meal by 84.7%, and wheat by 87.9%. This decline was not confined to exports to China. In examining exports to the European Union, the value of corn exports fell by 83%, and rice exports by 58.7%. Turning to Canada and Mexico, the value of dairy exports to Canada dropped by 20%, while the value of pork exports to Mexico declined by 19.7%. 

The effects of the retaliatory tariffs can be further quantified by examining the states that were most impacted. The Midwest states experienced the most significant effects from these tariffs, with Iowa and Illinois being the hardest hit in both the Midwest and the entire United States. Illinois faced the most severe consequences due to its substantial export of agricultural products. According to the USDA report, between 50% and 60% of all agricultural goods produced in Illinois in 2017 were exported to other countries, while many other states in the Midwest fell within the 30% to 40% or 40% to 50% range. Focusing on specific commodities, Illinois suffered a loss exceeding $1.25 billion in soybean exports, while Iowa experienced losses between $1 billion and $1.25 billion. Iowa also incurred over $200 million in losses from pork exports, the highest of any state in the United States. Both Iowa and Illinois lost over $30 million in corn exports, while states such as Nebraska, Minnesota, and Indiana faced losses ranging from $10 million to $30 million. Overall, Iowa experienced an 11% loss in exports, with Illinois following closely at 10.6%. Kansas, Minnesota, and Indiana rounded out the top five. 

What does this mean for agricultural producers today? There are renewed concerns of a trade war reminiscent of the 2018-2019 trade war. If the losses from 2018-2019 are anything to go by, producers are likely to see significant effects on their operations. Combined with already precarious financial outlooks for farm operations in 2025, additional pressure could be placed on producers in Illinois and across the United States. The 2018-2019 trade war affected every sector of U.S. agriculture, and a new trade war would likely have the same effect. A decrease in U.S. exports to countries like China could further leave the door open for other countries (i.e., Brazil and Argentina) to fill the gaps and overtake the U.S. as major suppliers of agricultural products on the world stage. Trade is extremely important for U.S. agriculture. The likelihood of tariffs and retaliatory tariffs imposed on U.S. agricultural products requires producers to strategize on ways to protect their financial position moving into 2025 and the future. 

For additional information, please visit the following resources:

• Import Tariffs Overview and Resources (U.S. International Trade Administration): https://www.trade.gov/import-tariffs-fees-overview-and-resources.
• Tariffs Explained (farmdoc on YouTube): https://www.youtube.com/watch?v=KIv0Fdp53BA.
• 2018 Tariff List on Chinese Products (Office of the U.S. Trade Representative): https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-section-301-action-ustr.
• Economic Impacts of Retaliatory Tariffs on U.S. Agriculture (USDA ERS): https://www.ers.usda.gov/publications/pub-details?pubid=102979.