Ratcheting up tariffs on U.S. imports of Chinese products would place a target on both U.S. soybeans and corn and create a ripple effect throughout rural economies, according to a new study.
Considerable discussion has surrounded suggestions of the U.S. escalating tariffs on Chinese products, which prompted the National Corn Growers Association and American Soybean Association to request the World Agricultural Economic and Environmental Services (WAEES) to evaluate the impact a trade war would have on soybeans and corn today.
The conclusion of the study: A reignited trade war would reduce both U.S. soybean and corn prices and the combined production area of the two crops. The study forecasts Brazil and Argentina would claim the lost market share, likely lost to American farmers for decades.
As the top two export commodities for the U.S., corn and soybeans account for about one-fourth of total U.S. agricultural export value.
The study specifically investigated the impacts of another potential U.S. and China trade war in which China responds to U.S. punitive tariffs by imposing retaliatory tariffs on corn, soybeans and soybean products (meal and oil), as would be expected given the 2018 trade war and overall historical precedent.
“Corn and soybeans are prime targets for tariffs as the top two export commodities for the U.S. As the largest exporting state in the country, Illinois farmers can expect to pay an extremely heavy price,” said Jeff Scates, chairman of the IL Corn Marketing Board and farmer in Shawneetown.
ASA Chief Economist Scott Gerlt noted the U.S. agriculture sector is already going through a significant economic downturn.
“This work shows that a trade war would easily compound the adverse conditions that are placing financial stress on farmers,” Gerlt said. “Even when a trade war officially ends, the loss of market share can be permanent.”
Researchers modeled several scenarios that could play out in a new U.S.-China trade war and found a consistent outcome:
• Severe drop in U.S. exports to China. If China cancels its current waiver (from the 2020 Phase I agreement) and reverts to tariffs already on the books, U.S. soybean exports to China would, according to the study, fall 14 to 16 million metric tons annually, an average decline of 51.8% from baseline levels expected for those years. U.S. corn exports to China would fall about 2.2 million metric tons annually, an average decline of 84.3% from the baseline expectation.
• Brazil and Argentina would benefit. Brazil and Argentina would increase exports and gain valuable global market share. Chinese tariffs on soybeans and corn from the U.S. — but not Brazil — would provide incentive for Brazilian farmers to expand production area even more rapidly than baseline growth.
• No place to turn. While it is possible to divert exports to other nations, the study found there is insufficient demand from the rest of the world to offset the major loss of soybean exports to China to support the farmgate value.
The study found that a new trade war would lead to a steep drop in soy and corn prices, resulting in a ripple impact across the U.S., particularly in rural economies where farmers live, purchase inputs, use farm and personal services and purchase household goods. Other recent studies examining the effects of tariffs have arrived at similar findings.
In the 2018 trade war, the U.S. extended tariffs on steel and aluminum to several major trading partners and separately imposed tariffs on an extensive range of imported products from China. In response, China and other nations imposed retaliatory tariffs on numerous U.S. products, including many agricultural and food products. This led to significant reduction in U.S. agricultural exports to those nations. As a result of retaliatory tariffs from the onset in summer 2018 through the end of 2019, U.S. agricultural export losses exceeded $27 billion, with China accounting for about 95% of the value lost, according to USDA.
“Farmers are definitely concerned about trade,” said Michael Langemeier, an agricultural economist from Purdue University who helps author the Purdue University/CME Group Ag Economy Barometer. “We don’t ask specific questions related to tariffs in the Ag Economy Barometer, but one question we do ask is if they expect exports to increase, decrease or stay the same? Really, this is the most pessimistic they’ve been for about five years with regard to trade.”