Tariffs could trigger sharp drop in US corn and soy exports

04-Nov-2024 - Last updated on 04-Nov-2024 at 11:09 GMT

A recent economic study finds that a new US-China trade war could severely impact US soy and corn growers and boost competitors.

Commissioned by the American Soybean Association (ASA) and the National Corn Growers Association (NCGA), the study was conducted by the World Agricultural Economic and Environmental Services (WAEES). It concluded that repeated tariff-based approach accelerates conversion of cropland in South America, which has permanent ramifications on soybean and corn exports worldwide. And US soybean and corn growers bear the burden.

The authors forecast an immediate and substantial decline in US corn and soybean exports if new tariffs are imposed.

The findings come as US policymakers across party lines consider tariff-centered measures to address trade challenges with China.

ASA chief economist, Scott Gerlt, said: “The US agriculture sector is 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. Even when a trade war officially ends, the loss of market share can be permanent.”

“The study highlights the dangers that come with broad tariffs on imports,” commented NCGA lead economist, Krista Swanson. “While launching widespread tariffs may seem like an effective tool, they can boomerang and cause unintended consequences. Our first goal should be to avoid unnecessary harm.”

Potential scenarios

The WAEES researchers modeled several scenarios that could play out in a new US-China trade war and found a consistent outcome:

Severe drop in US 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. US 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 thus gain valuable global market share. Chinese tariffs on soybeans and corn from the US—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.

Experience and research have shown that US agriculture often bears the cost of trade disputes. US soybeans and corn are prime targets for tariffs, according to the ASA and NCGA economists.

As the top two export commodities for the US, together they account for about one-fourth of total US agricultural export value. Intermediate products from the two commodities, such as soybean meal and oil, ethanol and DDGs, capture additional share of that total.

Economic impacts of retaliatory tariffs on US agriculture

In their note on the study, the economists outlined how, in the 2018 trade war, the US 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 US products, including many agricultural and food products. This led to significant reduction in US agricultural exports to those nations. As a result of retaliatory tariffs from the onset in summer 2018 through the end of 2019, US agricultural export losses exceeded $27bn, with China accounting for about 95% of the value lost (USDA).

“China and the US signed a Phase I Agreement in January 2020, which helped end the trade war. Part of the agreement stipulated China would purchase $80bn of US agricultural products over 2020 and 2021. China dramatically increased its purchases of US agriculture products during that time, though final volumes fell short of those obligations, with only $59.2bn of those goods purchased by China.

“Logistics issues stemming from the COVID-19 pandemic and resulting global supply chain crisis further limited China’s purchases, but the revival in trade, which included record volumes of soybeans and corn, helped repair goodwill between China and the US.

“US farmers have worked more than 40 years to establish and nurture their strong trade relationships with China. During those decades, many farmers visited China as part of trade teams, and Chinese buyers visited the US. The 2018 trade war created concerns about the reliability of US supply creating an incentive for China to invest in alternative supply chains. These investments encouraged irreversible production area expansion in US agricultural competitor nations. While it took decades to fully develop trade with China, the trade war quickly reversed many years of efforts in ways that remain difficult to recover.”

The ASA and NCGA argue that maintaining a stable trading relationship with China aligns with US economic interests and that any tariffs should be carefully assessed for their potential impacts on American agriculture and rural economies.