Commentary: Tariffs have potential to hit ag especially hard
In the end, the goal should be to have BOTH border security AND free trade.
By Nevil SpeerA flurry of news articles has resulted from the announcement of the Trump Administration’s intention to impose new tariffs on all goods arriving from Canada and Mexico. (Let’s ignore China for now). There’s now lots of uncertainty and complexity regarding supply chains and the ensuing economic fallout – and rightfully so.
But amidst all that chatter and forecasting, not surprisingly, the media has largely overlooked any discussion related to agriculture. The discussion that follows is meant to provide some insight to help navigate some of the uncertainties noted above.
Normally, tariffs are implemented on behalf of some slice / segment of the economy. That is, they’re intended to shield an industry or sub-industry (i.e. special interest group) from international competition - private interest being key. And unfortunately, those efforts also often morph into logrolling; one special interest group proclaims, “We’ll support and lobby for your tariffs, if you support ours.” And on it goes.
From a principled standpoint, those tariffs are inherently self-contradictory. No one describes that reality better than Dr. Donald Boudreaux (George Mason Univ). Several years ago, in a Mercatus Center podcast, he summarized it like this: “…what [protectionists] want is to have all the riches of being part of the dynamic competitive market order but they individually would like to be excused from it.”
However, the current scenario is somewhat different. The policy is being implemented from a public interest standpoint; these are across-the-board tariffs meant to secure the border against illegal immigration and drug smuggling (no logrolling here).
However, that doesn’t mean the outcome won’t be the same. First, there’s the issue of direct costs. Sure, we can all argue about whether it should be called a “tax” and who’s going to pay for it, but in the end, tariffs represent added costs to any good being purchased. That ultimately creates added drag on the broader economy.
Secondly, there’s also the consideration of the blowback. The potential for retaliatory tariffs is an especially important consideration. Canada and Mexico combined for nearly $57B in ag purchases from the United States in 2023 – representing nearly one-third of all agricultural export sales.
In the last round of tariffs, USDA Economist Stephen Morgan explains that retaliation hindered opportunity for farmers and ranchers: “Across all commodities and States, annual U.S. losses from retaliatory tariffs were estimated to be $13.2 billion from mid-2018 through 2019.”
All of this gets personal, too. We all reap the benefits of international trade on a daily basis. My favorite story illustrating that reality is drawn from a column I wrote for Feedstuffs in 2013. I had flown into Pittsburgh on my way to West Virginia. I explained it like this (if only I had taken a picture!):
Just outside of Pittsburgh, in the middle of a snowstorm, I stopped at a grocery store to get something to eat. As I walked into the store, I passed an elderly gentleman who was exiting the store with a single sack of various items and a bundle of bananas. The image was powerful; the paradox stopped me dead in my tracks. The availability of fresh bananas against the backdrop of a snowstorm in Pittsburgh in January speaks volumes about the bounty of our food and transportation system.
Trade is hugely important to agriculture! IF the tariffs go into effect, it will definitively create a cross section of winners and losers. That’s not intended to suggest the United States should sacrifice border security for trade’s sake (the tyranny of the OR). Rather, it’s intended to illustrate just how important trade – especially with Canada and Mexico – is for rural America. And in the end, the goal should be to have BOTH border security AND free trade.
