By Taylre Beaty, NAWG Summer 2018 Intern
Historically, trade wars between the United States and our partners have lead to negative long-term results for agricultural producers. Economists are looking to trade wars following World War I and the Great Depression eras to explain the affects of the current trade climate.
Unfortunately, these tense trade relationships that are fought with steep retaliations continue to hit producers with market uncertainty and price volatility. Ag groups also fear that current conditions may cause irreparable negative relationships with our largest export markets. Trade negotiations continue between the U.S. and China, Mexico, Canada and many others.
Agri-Pulse recently published a piece highlighting the history of tariffs on agriculture and how they work. A brief blurb is below:
As U.S. leaders pledge to increase tariff rates on Chinese products and the Asian giant plans to retaliate, more farmers are asking: ‘How do tariffs really work?’
The basic principles behind tariffs haven’t really changed since first enacted in the early years of U.S. history. They are designed to protect domestic businesses – often specific industries like steel or agriculture – and can generate revenue for the government. Basically, they are a tax on imports and normally, they are calculated as a percentage of the price that a buyer pays a foreign seller.
Let’s say, for example, that a U.S. manufacturer wanted to buy a machinery part that is made in China. That specific part normally sells for $100. But now, the U.S. has imposed a 25 percent tariff on imports from China. Instead of $100, the price would be $125, with the tariff portion collected at one of our 328 official ports of entry. Eventually that tariff revenue would flow to the U.S. government. (Actual tariff rates and products vary.)
The opposite applies in countries like China, who have retaliated by imposing steep tariffs on U.S. products like pork and soybeans. A Chinese buyer would have to pay a higher price, or in most cases, simply stop buying from the U.S. and purchase elsewhere, like Brazil.
With China buying up all of Brazil’s soybeans, former Brazilian customers like the European Union will likely start buying from the U.S., the only other major supplier.
With tariffs in place, trade flows tend to reroute to the most cost-effective supply chains, but that doesn’t mean that some U.S. farmers won’t face steep losses in the meantime.
The full article can be accessed on Agri-Pulse.