In this piece, we’ll examine the economic war between the U.S. and China. And we’ll find out how this conflict is hitting American farmers where it hurts. It’s a tale of fortitude, compromise, and the unexpected consequences that can occur when economic titans collide.
Overview of China's Tariffs on Agricultural Products
The economic relationship between the United States and China is both complicated and contradictory, with sweeping impacts on international trade. When geopolitical tensions increase, one of the first and most visible areas of contention is the agricultural space. China is the largest importer of U.S. agricultural goods. It frequently wields tariffs on these products as its tool of choice for resolving economic conflicts. These tariffs function as taxes on imports. They can have an outsized effect on determining our flow of goods and undermining the financial well-being of American farmers.
Background on the Tariff Implementation
When China implements new tariffs, it is frequently a retaliatory response to U.S. measures. Whenever the U.S. imposes tariffs on Chinese goods, China usually responds with proportional or similar tariffs in retaliation. In retaliation, they can focus on key U.S. exports, including agricultural exports. This tit-for-tat approach, which can spiral out of control, is often referred to as a trade war. The motivations for each of these moves are many—from IP theft to trade imbalances to geopolitical chess—but in any case, their effects are the same. Knowing this context is key to understanding why farmers are ending up on the front lines.
Affected Agricultural Goods
The list of ag products subject to Chinese tariffs is extensive, hitting every sector of American agriculture hard. Primary products they’re frequently aimed at include soy, corn, pork and other agricultural products. These are all big U.S. export products. Perhaps the most immediate example is the economic fallout from China’s decision to limit or tax these imports. China has begun to place ceilings on imports of some U.S. ag commodities. In retaliation, it imposed steep tariffs on a wide range of U.S. exports, most notably targeting soybeans, corn and pork. The cancelation of the U.S. pork orders, totaling thousands of metric tons, destroyed that $6.5 billion market for American pork.
Impact on Farmers
For American farmers, the imposition of tariffs by China can be an economic earthquake. In short, these tariffs break long-time trade relationships and negatively impact U.S. product demand. Consequently, they pose an existential risk to the economic sustainability of farming communities. The costs are more than monetary — they’re taking away the way of life, future, and livelihood of countless rural families.
Economic Consequences for Farmers
Yet the economic impact on farmers is equally complicated. It’s common commodity price drops of 10%, and at times up to 30% or even 50%, depending on the commodity. This theoretically lower price translates to the farmers receiving less money for their crops, which in turn shrinks their profit margin. Moreover, the U.S.-China trade war has already sent soybean prices crashing. Today marketing these soybeans locks in a loss. Agriculture Farmers in Iowa, Nebraska, Minnesota, and Illinois can’t afford to purchase new Deere equipment. Instead, the trade war has added an economic burden that is particularly acute for them. As a result, farmers’ incomes tanked by $11.8 billion in the first quarter of this year alone. This precipitous drop was largely fueled by the worsening trade war.
Long-term Effects on Agricultural Industry
The aggregate impact on agriculture, long-term, can be significant. Lost revenue threatens farm viability, accelerates land loss to corporate agriculture, and drives more people away from rural places. The trade war has resulted in over $26 billion in agricultural export losses between 2018 and 2019. These changes could reshape the face of American agriculture, resulting in a less diverse and more consolidated industry. Dire continues to hover due to ongoing trade disputes that inject uncertainty. This makes it harder for young people to start careers in farming and jeopardizes the future of this critical industry.
Responses from the Agricultural Sector
Responding to all these extraordinary pressures, the agricultural sector has enjoyed an amazing display of perseverance, determination, and ingenuity. Farmers, ag industry groups eager to fight damage caused by tirade war. They’re forging into new markets, diversifying what they farm, pushing for more government help.
Adaptation Strategies by Farmers
So far, farmers have used a variety of adaptation strategies to deal with the tariffs. Perhaps one of the most prevalent ways companies react is looking for new export markets for their products. By diversifying their customer base, they can calm their reliance on China and decrease the effect of tariffs. One more way is by diversifying the types of crops they’re growing. Farmers might choose to grow more corn than soybeans. Or they may switch to different crops that are less affected by the tariff’s impacts. Makenna Green, 18, tells us she’s not going anywhere with a self-assuredness that leaves no doubt she’s in command. Her family’s farm—Heritage Family Farms—is devoted to growing corn and soybeans.
Government Support and Policies
It’s through strong government support and policies that we can continue to help America’s farmers weather the storm on these difficult times. One of the most important ways our government helps farmers is through financial aid programs. These programs offer direct payments to farmers, helping them to recover at least a portion of their losses suffered as a result of the trade war. The current Farm Bill expires in September 2023. Now legislators have the chance to amend existing USDA initiatives or the CCC Charter Act to improve transparency and oversight of any upcoming farm aid programs.
Future Implications
Looking to the farther future, the fate of American agriculture amid U.S.-China trade relations is still unclear. To do so requires hope for community resolution, but allows hope for renewal of trade agreement rejections. There’s the possibility that the stalemate continues and even deepens with further bloodshed. Grasping the implications of these possible futures is critical for both farmers and advocates as well as federal decision makers.
Predictions for the Agricultural Market
While forecasts of the agricultural market do generally predict strong growth, those predictions dramatically change based on what assumptions we enter about the future of U.S.-China relations. Should trade tensions ease up, it’s not hard to imagine a strong market recovery. Reduction or elimination of other tariffs would significantly increase demand for U.S. agricultural products. If the trade war continues and the market stays depressed, farmers will continue to feel financial pressure.
Potential Changes in Trade Relations
Recent or potential changes in American farmers’ trade relations have a potential to dramatically change the formulas for American farmers. A comprehensive trade agreement that addresses key issues such as intellectual property protection and market access could lead to a more stable and predictable trading environment. Without a comprehensive agreement, we risk leaving the agricultural market in a state of uncertainty and volatility.
The tale of American agriculture at the height of the U.S.-China trade war is one of tragedy and survival. Join us as we unravel the trade war’s ugly dynamics and how they’re hurting our farmers. By looking at the strategies they employ to navigate these hurdles, we can gain a better understanding of the intricacies of global trade and how it shapes lives in local communities. OverTraders.com will continue to report on this critical issue. With our analysis at your fingertips, you’ll be equipped to make smart, ahead-of-the-curve decisions in a rapidly evolving world.
