How Chinese Tariffs Could Impact U.S. Farmers
The planting season is in full swing, but for American farmers, the threat of Chinese tariffs hangs like a dark cloud over their fields and businesses.
After President Donald Trump announced that he would levy up to $150 billion in tariffs against the Chinese, ostensibly to prevent intellectual property theft, China's leaders responded with their own warning. China, too, would issue tariffs that could significantly impact American agribusiness interests. As Bloomberg reported, Treasury Secretary Steven Mnuchin announced in mid-May that the tariff issuance was on hold as the countries engaged in negotiations to close the trade deficit and reach a mutually favorable trade agreement. Still, the potential for Chinese tariffs looms, leaving many American farmers wondering what could be next.
Which Crops Are Most Likely to Be Affected?
Soybean and corn are among the products that could be subject to tariffs, which would be a major blow to U.S. growers. These are the country's leading crops, and Midwestern farmers would feel the worst of the impact, as the majority of both corn and soybean are grown in that part of the country. Soybeans are a key import for China, and its government is threatening a 25 percent tariff on this and other products, including chemicals and aircraft.
But it's not just crops that are in the crosshairs when it comes to the negative effects of these measures. If farmers see profits drop, their entire communities are affected, CNBC reported. Manufacturing companies that rely on agricultural partners for business could feel a pinch, as could local shops, restaurants and professional services providers located in ag-centric parts of the country.
How Much Will Tariffs Cost Farmers?
China imports $20 billion worth of crops from the U.S. each year, so the losses could be substantial. The situation is made worse by the fact that crop prices are already low, so growers were forecasting slimmer profits even before the threat of a trade war. The Department of Agriculture predicted that in 2018, net farm income would nominally drop to the lowest level since 2006.
When Might the Tariffs Come into Effect?
China threatened that it would issue immediate retaliatory tariffs as recently as April if the U.S. went ahead with its sanctions. However, as of May 21, both American and Chinese officials said that they were holding off on implementing their respective tariffs as they attempted to come to a favorable trade agreement. President Trump said that China was willing to purchase $200 billion worth of American products each year, according to The New York Times, a significant increase from the $115.6 billion it imported in 2016.
However, no formal agreement had been established as of May 21. If the ongoing meetings are successful, sectors of the agricultural industry could ultimately benefit. The Chinese government has suggested that it will increase its American imports if the two countries can reach a deal, and it's expressed particular interest in pork and other food products. It's reasonable to assume that a significant portion of the proposed $200 billion will include agricultural exports. But White House Commerce Secretary Wilbur Ross said that if the negotiations break down, the U.S. could still implement the tariffs.
An Uncertain Future, Both Short- and Long-Term
There's been a lot talk about the Trump administration issuing farm subsidies or authorizing government agencies to buy surplus crops, but many farmers are reluctant to embrace such measures. They believe that short-term solutions will not only fail to solve their biggest pain points but that they will exacerbate the issue of low profits and constrained sales. For now, farmers and their affiliates in other industries will remain in a holding pattern until a deal is formalized or the tariffs are implemented.