"Trade Wars: The Double-Edged Sword for U.S. Farmers"

Trade has become a hot topic this year, with a lot of uncertainty. Trade policy decisions being made in Washington will impact farmers and ranchers in the countryside. This Market Intel report is part of a series exploring different topics related to agricultural trade, including the potential impacts of trade policy changes and Agricultural Exports 101.

Tariffs can be a double-whammy for farmers. Farmers not only end up paying more for inputs, they also often take the brunt of retaliatory tariffs. With over 20% of U.S. agricultural goods exported, retaliatory tariffs can pose a major threat to farmers’ ability to turn a profit. The most recent rounds of U.S.-imposed tariffs, and subsequent retaliation, are no different. The three top countries targeted for tariffs to date: Mexico, Canada and China, are also our top three markets for agriculture exports at $30.3 billion, $28.3 billion and $24.7 billion, respectively, in 2024.

Retaliatory Tariffs in Effect as of March 18, 2025

The imposition of tariffs on imports to the U.S., and subsequent retaliatory measures by other governments, is occurring so rapidly that it’s hard to keep track of which tariffs have been announced, which have been paused, and which are in force from our own government – let alone from our many trading partners.

From Inauguration Day through March 18, 2025, an additional 20% of tariffs have been applied to all Chinese products, 25% to most Canadian and Mexican products (which were subsequently paused through April 2 on USMCA-compliant products) and 25% to all steel and aluminum imports from all countries.

Canada and China have already implemented retaliatory tariffs in response to U.S.-imposed tariffs. The European Union also recently announced that they plan on imposing tariffs on U.S. products in early April.

Canada Retaliatory Tariffs – Tranche I

In 2024, Canada was the second-largest destination for U.S. agricultural products by value. Effective March 4, the date a 25% tariff on all Canadian products (excluding energy, which received a 10% tariff) went into effect, Canada imposed a 25% tariff on roughly $21 billion (CA$30 billion) of U.S. products. Over a quarter of the retaliatory tariffs are on a total of $5.8 billion of U.S. agricultural products, according to Canadian trade value statistics for 2024.

On a value basis, several processed food products including chocolates and other confectionery products are the most impacted, along with coffee. Additionally hard-hit U.S. agricultural products include $425 million in wine, $363 million of fresh fruit, $212 million of dairy products, $211 million of poultry and $160 million of rice. On a percentage of exports basis, watermelons are among the most impacted products. In 2024, 97% of our country’s $114 million in watermelon exports were shipped north to Canada.

Canada has vowed to go dollar-for-dollar with U.S. tariffs and is currently seeking comment on which products should be included in an additional round of tariffs on approximately $87 billion worth of U.S. exports. It is likely that this second tranche of exports will cover all U.S. agricultural exports to our northern neighbor. Canada also announced an additional set of tariffs on March 12 on approximately $21 billion of U.S. exports in response to the U.S. steel and aluminum tariffs, but the list did not include any agricultural products.

The impact of these tariffs is already being felt by farmers across the country. The U.S. Department of Agriculture study found that retaliatory tariffs reduced U.S. agricultural exports by $27 billion from mid-2018 to the end of 2019. Soybeans accounted for the majority of the decline, at 71 percent, followed by sorghum and pork at 7 percent and 5 percent respectively. The losses were primarily concentrated in states exporting these products, such as Iowa, Illinois, and Kansas, where GDP losses totaled $3.8 billion through 2019. Altogether, the U.S. lost nearly $16 billion in trade with retaliatory countries due to these tariffs.

The potential for a repeat of these events is now a primary concern for the U.S. agricultural sector. As new trade policies are proposed, the risk of further retaliatory tariffs looms large, threatening to disrupt markets again and cause substantial economic harm to U.S. agriculture.

The proposed U.S. trade policies under consideration could have profound implications for the agricultural sector, particularly if they provoke retaliatory tariffs from China. To understand the potential impacts, we consider three primary scenarios that reflect varying levels of tariff increases and corresponding retaliatory measures. In the first scenario, the U.S. Executive Branch imposed a 17.5% to 75% increase in import tariffs on select Chinese goods, including steel, aluminum, semiconductors, and EVs. In retaliation, China responds with a 20% tariff increase on U.S. agricultural products. This scenario assumes that no other countries will engage in retaliatory actions, making it a bilateral conflict between the U.S. and China. The second scenario advocated by the Republican presidential candidate is more complex and is divided into two sub-scenarios. Scenario 2.a involves the U.S. imposing a 10% tariff increase on all goods from all countries, prompting a global retaliatory response with similar tariff increases on U.S. agricultural exports. Scenario 2.b escalates the situation further, with a 60% tariff increase on Chinese goods and a 10% increase on goods from other countries, leading to a more severe global trade war.

In summary, the U.S. tariff policies have significant long-term economic and political implications for global trade relations. These policies have already led to retaliatory measures from key trading partners, resulting in economic losses and strained diplomatic relations. Future trade agreements and negotiations are likely to be influenced by these policies, with the potential for further escalation and disruption in global trade patterns.