China has raised tariffs on roughly 5,000 U.S. exports to the country, worth tens of billions of dollars, in retaliation for President Donald Trump’s trade policies. And on Thursday, Trump announced new tariffs on Mexico set to take effect in early June.
Meanwhile, American farmers are caught in the middle of both.
Chinese tariffs impact a long list of fruits, vegetables, and other agricultural goods (cotton, seed oils, etc.). While some of these tariffs won’t have much effect on the American economy — given that some goods were basically pushed off the table by earlier tariffs — many American businesses are still reeling from the last round of tariffs in September.
“We sold some soybeans to China, when the negotiations were going apparently well, and that won’t happen now — they will do their best to get soybeans from others,” said Wallace Tyner, a professor of agricultural economics at Purdue University.
A lot has changed since that high point in February.
During the latest round of negotiations earlier this month, U.S. trade negotiators accused China of “backtracking” on key commitments agreed upon in previous drafts of a trade agreement. The negotiations, which took place in Washington, yielded only escalation on a number of fronts:
- Both the United States and China increased tariffs on each other’s goods.
- The Trump administration blacklisted tech giant Huawei, saying it posed security threats to the United States. China mounted a legal challenge to the move, calling the blacklisting unconstitutional.
- China is considering limiting its rare-earth exports, or minerals used in oil refineries, and tech gadgets, like smartphones, laptops, and tablets.
- The U.S. Treasury Department, while stopping short of declaring China a currency manipulator, on Wednesday included the country on a watch list of nine countries whose foreign exchange policies it is monitoring.
All of which is to say that American farmers have found themselves tangled up in a whole host of issues that have nothing to do with them and their crops.
Agriculture tends to be “the tip of the spear” on trade issues, said Veronica Nigh, an economist at the American Farm Bureau Federation, but farmers “have put a lot of faith in the ability administration” to resolve this situation before things get dire.
But time is of the essence.
The problems are compounded because of the planting seasons, said Tyner.
“The first thing you plan is corn, and you try to get your corn in by the first of May… You have a window you can work it,” he said. “At some point, you can’t plant that variety of corn you had hoped to plant, the long-season variety, so you have to switch to a short-season variety. And then at some point, it’s too late to plant corn, so what do you do? You plant soybeans, normally by early June.”
Tyner said that on May 1, Indiana was flooded. Its corn crop was only 6% planted at the time, with a similarly dire situation unfolding in other Midwestern states. The rain has kept farmers out of the field during corn season, leaving them with soybeans to plant, which has raised the price of corn, and lowered the price of soybeans.
“It’s a double-whammy — you have a reduction in prices, due to the tariffs, and the reduction in price because there’s more soybeans on the market because that’s all they could plant,” said Tyner.
The $16 billion in aid bailouts Trump announced for farmers hurt by his trade war earlier this month is no promise of relief. As the Los Angeles Times reported, most of the money will go to wealthy farmers, as opposed to smaller, independent ones (as payments are proportional to the size of crops). Plus, that $16 billion figure isn’t quite what it looks like, because the aid is to be distributed in three installments, with “the idea being that if everything is solved and the markets rebound they might not have to make all three [payments],” said Tyner.
Many farmers depend on regular operational loans from banks — and if things continue as they do, said Tyner, next year’s loans might be problematic as banks take trade wars and floods continue to squeeze the market.
“Come harvest time, that’s when the rubber really hits the road for farmers — that’s when the loans are due,” said Nigh. The end of harvest season is in six months.
“What does a fall without markets look like for U.S. agriculture? Frankly, we don’t know,” she added.
Farmers are already feeling “the pain,” she said, noting that farm income in 2019 is projected to be 44% lower than it was in 2013.
Mexico tariffs ‘worse than China’
That projection might get worse. On Thursday night, Trump gave farmers more reasons to worry when he announced new tariffs on Mexican goods in retaliation for what he says is their failure to prevent Central American migrants from reaching the U.S. border.
Mexican imports will face tariffs of 5% beginning on June 10, to be increased by 5% every month until they hit 25% by October.
On Friday morning, the president took his argument to Twitter:
Mexico has taken advantage of the United States for decades. Because of the Dems, our Immigration Laws are BAD. Mexico makes a FORTUNE from the U.S., have for decades, they can easily fix this problem. Time for them to finally do what must be done!
— Donald J. Trump (@realDonaldTrump) May 31, 2019
This could delay — or potentially kill — the free trade deal with Mexico and Canada, awaiting ratification by lawmakers in all three countries. And China will notice if the United States scuttles another trade deal, compounding the issue further.
While the USMCA (which is to replace a the North American Free Trade Agreement, or NAFTA) was being negotiated, the president slapped tariffs on steel and aluminum imports from Mexico and Canada. Two weeks ago, Trump agreed to to lift those tariffs, in return for tariffs on U.S. agricultural goods being lifted.
But this latest salvo, said Tyner, “could do huge damage to the USMCA, which would be a great loss for the U.S., indeed, for all three countries… If this is implemented, it could do long-term damage to North American trade.”
If the USMCA is cancelled, Tyner told ThinkProgress that the United States “would go back where we were in 1995, and all three countries have gained enormously since then,” said Tyner. “It would be a disaster…. It’s worse than China.”
It’s unclear whether Mexico will respond with its own tariffs or simply walk away from the deal, but on Thursday night, Mexican President Andrés Manuel López Obrador issued an ominous statement to Trump.
“Please, remember that I do not lack valor, that I am not a coward nor timorous but rather act according to principles,” said Obrador in the public letter.
“We certainly think getting the USCMA passed would be very helpful — it would show the rest of the world that we’re very serious about trade agreements. It would be great if we could settle some of the trade fires that we’ve got now and stop setting new fires…and close out the USCMA as well,” said Nigh.
Tyner, though, said he expects a reciprocal response in tariffs from Mexico.
Trump’s fresh tariffs on Mexican goods will also likely harm the odds of a resolution in negotiations with China, as it puts his administration’s reliability as a trade partner in question.