U.S. Farmers Face Growing Risks from Trade War, Economist Says
Published: Friday, April 25, 2025
The evolving developments in the tariff and trade war situation have caused discomfort in both agriculture markets and producer sentiment.
Ian Sheldon, professor and chair of Agricultural Trade and Economic Policy at Ohio State University, presented insights on trade policy's potential impact during the Ohio Food Policy Network's virtual talk last Friday.
A two-month timeline of activity sequence on tariffs ended describing the never-before-seen tariff levels between China and the Unites States, with China imposing 125% tariffs on all goods imported from the U.S. and the United States firing back with a 145% tariff on goods imported from China.
"The risks to American farmers are growing day by day and could significantly reduce trade with our third largest trading partner and potentially depress prices for key exports like corn and soybeans," Sheldon said.
Sheldon noted that between 1930 and 2018, there were no meaningful trade wars between the U.S. and any other country.
North Dakota State University published a study in late 2024 considering two levels of tariff scenarios. While there is no perfect forecast, one scenario forecasted the impacts of 60% tariffs levied against each other between China and the U.S. The reality is that tariffs are now double, or more than what was indicated in the study.
At a 60% tit-for-tat tariff level, the researched projected annualized losses of $60 billion, compared to the actual $14-15 billion lost during the 2018-19 trade wars, a four-fold increase. Soybean markets will bear the brunt of losses.
The situation could worsen, Sheldon said, if the U.S. were unable to divert lost exports to other buyers.
As China shuts of the flow of imports from the United States, it is shifting imports to acquire more from Brazil and Argentina, leading to significant price decline for American growers and increases for South American growers.
Eighty percent of total U.S. potash imports come from Canada and 52% of crude oil imports refined in the U.S. originate in Canada. Sheldon notes clear potential for input price increases especially in these categories from Canada, even at 10% tariff implementation.
Port taxes on any Chinese flagged ship or ships built in China are already raising export costs, which passes back to American farmers in lowered prices they receive at the point of sale, which continue to erode and narrow margins.
During the first trade war with China, the U.S. administration compensated farmers for losses incurred during the trade war. A second round of Market Facilitation Compensation has been hinted at by Secretary of Agriculture Brooke Rollins. However, Sheldon que-
stions the economic and political feasibility of more payments, considering the $10 billion in payments in late 2024 to compensate for falling commodity prices, the uncertainty with a new farm bill, and the upcoming review in 2026 of the U.S.-Mexico-Canada Agreement (USMCA).
Sheldon explained that if all partners in the USMCA trade agreement cannot agree to renew the arrangement, it will be reviewed annually for the following 10 years, and at that time if a stalemate continues, the act will disappear.
"I think it is very critical to maintain access to our USMCA partners, as they are the two largest export markets, and new tariffs could undermine the integrated nature of our North American agricultural market," he said, noting that about 45% of U.S. corn exports are destined for Mexico.
Since 2021, U.S. marketshare of commodities sold to China has declined, but since 2022 has declined with increasing velocity. Brazil is experiencing a meteoric rise in exports to China as its technological and acreage capacity has gained stride. Brazilian yields are converging on U.S. yields and the United States has reached its capacity to grow acreage for soybean production.
Broad economic impacts are likely to impact all aspects of the U.S. economy. According to Sheldon, when all tariffs are in place, the U.S. GDP will shrink by $170 billion and will take years to return to the previous GDP level. He said there is a potential for a one-time increase of 2.9% in the inflation rate, assuming the Federal Reserve makes no changes.
Tariffs disproportionately hurt low-income households that shop typically shop at Walmart, Target and Amazon type retailers. He also noted that while 50% tariffs generate revenue, total revenue is less than 40% of the total revenue generated by the federal income tax.
The World Trade Organization, while somewhat broken, is meant to function as a dispute resolution mechanism for trade. Both the U.S. and China have filed complaints and appeals, with rulings disappearing into the void for both sides. The system's breakdown has unintended consequences, the most prominent being trade policy uncertainty.
Summarizing the discussion, Sheldon said that the longer tariffs are in place, the more pressure there will be on profit margins and the rate of market losses will accelerate.
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