I, like most involved in agriculture production, have tried desperately for the past three months to understand how tariffs would impact agriculture. Rather, how the new tariff deal proposed by the new administration would impact agriculture.
Three months ago, my position was: This new tariff deal will be a lot of talk and little action. So far, that has been the case; however, this could change in the blink of an eye. Even what is written today could be old news by the time this ink dries. Nonetheless, there are some constants in the world trade that are going to be impacted. For now, however, the largest component of tariffs is uncertainty.
As a nation, our ag production has been produced in a highly competitive industry wherein the competitor is seldom over the fence but across the water. This production has then fed this nation. However, only 20% of U.S. ag production is exported. Still, these countries we export to charge us to sell product to them.
According to the Bureau of Economic Analysis, U.S. farm production in 2023 contributed $1.5 trillion to a total gross domestic product (GDP) of $28 trillion. That is approximately 5.5% of GDP. The largest U.S. exports are petroleum, aircraft parts, vehicles, medical equipment and then soybeans and corn. Not to get lost in the numbers, but we need to understand just how much or how little ag production is exported to gauge the impact of tariffs on this trade.
In turn, the U.S. imports 15% of our overall food supply. That specifically is 32% of our fresh vegetables, 55% of our fresh fruit and 94% of the seafood consumed. Conversely, the largest U.S. agriculture export is soybeans ($27 billion), followed by corn ($18 billion), beef (yes, beef at $10 billion), tree nuts ($8 billion), pork ($8 billion), dairy ($7 billion) and wheat ($7 billion). If a producer is in one of these high-import or high-export production sectors, tariffs have a much larger impact than in other sectors.
Lastly, for purposes of context, we export to Canada ($350 billion), Mexico ($327 billion), China ($157 billion, about half the volume to Mexico and Canada), Japan and the United Kingdom. In turn, we purchase product from Mexico ($475 billion, partly all those fresh fruits and vegetables), China ($427 billion) and Canada ($419 billion). By value, our largest imports are vehicles, medicine, oil, motor vehicle parts and communication equipment.
To generalize, the trade deals will affect agricultural producers, depending on their production sector. Tree fruit and nuts, vegetables, soybeans, corn and beef will be affected more by tariffs or lack thereof than other production sectors such as forage or chickens. My generalization of current tariff negotiations is: They will be equal or near zero, approaching a near-free trade situation worldwide.
The resistance to this free trade has been built over decades of favored trade status with concessions made for several reasons and various production sectors with governments across the world. The time for the U.S. producer to pay for the privilege of selling product to the world may be over, or at least significantly reduced. Conversely, the time for the U.S. consumer to pay extra for the privilege of purchasing goods from the world may be over or significantly reduced as well.
The reason these previously protected sectors will remove or decrease trade barriers is simple. The U.S. economy represents the largest discretionary income in the world, and the exporters to the U.S. must have the U.S. market to survive. Therein is the leverage to reengineer the free trade agreements for all sectors of the U.S.-producing economy, including agriculture as well as the consuming economy.
More than likely, this reengineering will have more unintended consequences that affect agriculture, as we only export 20% of our production. The unintended consequence may well be agriculture production intellectual property, more so than the actual commodities. Certainly, the specialty crops will be affected more so than large-scale commodities such as corn, wheat and soybeans. Specialty crops like mint, vegetables and tree nuts are most vulnerable to wild tariff policy swings.
Why pay attention to the next few weeks of negotiations? If one is not at the table to negotiate, one is eaten for dinner. It is time for agricultural producers to be involved and drive the tariff negotiation bus or risk getting run over by the bus. Utilize your trade associations and write emails to further your cause. This activism is more important today than at any time in the past decades of ag production. Ultimately, the perfect trading world does not exist, but hopefully it can be shaped a little toward free and open trade.
