The risk of tariffs – some U.S. farmers get it and some don’t

Glacier FarmMedia—Justin Sherlock farms near Dazey, a town in eastern North Dakota about 200 kilometres from the Canadian border.

Like many producers in border states, Sherlock understands the risks to American farmers if Canada and the United States slide into a trade war.

“I think we talk about it every day,” said Sherlock, referring to conversations with his fellow producers in North Dakota.

“Being in North Dakota … we do a lot of business with Canadian companies …. It’s a huge concern we have.”

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U.S. President Donald Trump’s new 25 per cent tariffs on imports from Mexico and Canada took effect on Tuesday, along with a doubling of duties on Chinese goods to 20 per cent, sparking trade wars that could slam economic growth and lift prices for Americans still smarting from years of high inflation.

On March 3, U.S. president Donald Trump said that America would impose 25 per cent tariffs on all goods from Canada and Mexico starting March 4.

The Trump tariffs and retaliatory tariffs will likely cause financial pain for American farmers.

Farmers such as Sherlock get it, but other producers don’t.

Tariffs, are they good or bad?

At the Commodity Classic trade show, held March 2-4 in Denver, a farmer asked an economist from Farm Credit, a financial institution that supports American farmers: “So, tariffs. Are they good or bad?”

Matt Erickson, agriculture and economic policy adviser with Farm Credit, paused for a moment before responding, and then pointed out some facts.

Mexico and Canada are the No. 1 and 2 export markets for agricultural products and livestock products for the U.S.

“So, yeah, it’s a big deal,” he said.

“The threat of tariffs are bearish to the stock market, for commodity prices…. It’s a big deal (for) volatility in the commodity market space.”

The downside of tariffs and protectionism are also obvious for Stan Born, a soybean grower from Illinois and a director with the American Soybean Association (ASA).

About 60 per cent of soybeans produced in the U.S. are exported.

As a result, the ASA opposes tariffs.

“Our experience with ag trade, they’re not very helpful…. Tariffs just impede trade. We want free, open and fair trade,” said Born.

“Every time we go to (Capitol) Hill, it’s a position we remind legislators of.”

Trump admin. frustrated by deficit

The U.S. sells a huge amount of corn to Mexico and significant volumes of ethanol to Canada, said Andrew Brandt, director of trade policy with the U.S. Grains Council, which represents corn, barley, sorghum, ethanol and dried distillers grain.

The trade relationship for grain in North America is working, but the Trump administration is frustrated by America’s trade deficit in goods with the world.

That includes a US$45 billion trade deficit in agricultural products, using data from U.S. ag secretary Brooke Rollins.

Brandt is taking a pragmatic approach when it comes to Trump and trade.

“This is the Administration that won the election. They say they’re going to do this. It’s our responsibility to work with them,” he said.

One example is Trump’s reciprocal trade plan.

In brief, if country X has a tariff on a certain American product, the U.S. will respond with a similar tariff on Country X.

“There is an opportunity there to fix some of the issues we’ve had with other countries,” Brandt said, adding the reciprocal trade plan “could be a means to that end.”

Farmers expect compensation

Several U.S. farmers at the Commodity Classic said the Trump administration will likely compensate producers for the damage caused by trade wars with Mexico, Canada and other nations.

Rollins hinted at that possibility during a March 2 press conference in Denver.

Those payments won’t replace export sales to global customers, but they will mitigate the pain.

Sherlock, who is also president of the North Dakota Soybean Growers Association, said farmers in his state would definitely notice if the trade battle lasts for months or years.

“There are so many opportunities for us to supply biofuels into Canada. And in North Dakota we have new crushing plants for soybeans. A lot of soybean meal has been going up there to support the hog industry.”

There are massive risks, but Sherlock remains hopeful political leaders in Washington, Ottawa and Mexico City can resolve this trade spat.

“Whatever is going on right now, I hope our political leadership can get together and find that common ground.”

Others at the Commodity Classic in Denver were less hopeful.

They said Americans will have to suffer economic hardship — job losses, a stock market decline and possibly a recession — before Trump relents on tariffs.