Trade War Implications for U.S. Agriculture: Round Two

Trade War Implications for U.S. Agriculture: Round Two

^{Christine McDaniel}

^{March 12, 2025} 

Canada, Mexico and China, the three largest markets for U.S. agricultural exporters, are in the crosshairs of a U.S.-led trade war, and once again U.S. agricultural producers look poised to take the brunt of retaliation. 

Canada and Mexico

Since President Trump took office on January 20, 2025, several tariff measures on Canada and Mexico have been announced and then reeled back. There has been a flurry of on-again, off-again tariff announcements. Readers can find the latest news at The White House Fact Sheet website. At the time of this writing, most of the tariffs on Mexico were lifted, but steep tariffs on steel and aluminum imports from Canada may still be imposed. 

On April 2, President Trump plans to impose “reciprocal tariffs” on goods from a wide range of countries, where the U.S. tariff would match the tariffs imposed on U.S. exports in each country. It has been reported that Canada and Mexico may escape reciprocal tariffs if they continue to make progress on border security and fighting fentanyl. 

China

On March 3, President Trump imposed an additional 20% tariff on all Chinese imports (this covers two cumulative rounds of 10% tariffs since he took office. i.e., 10% + 10% = 20%). In response, China announced swift retaliation. Once again, U.S. agriculture is the target of China’s retaliation. Specifically, China is imposing 10% retaliatory tariffs on U.S. soybeans, pork, beef, sorghum, fruits and vegetables, and dairy; and 15% tariffs on U.S. corn, wheat, cotton, and chicken. 

This may feel like déjà vu for many U.S. farmers, who weathered the 2018-2020 trade tensions, including suffering major export losses. Overall, the U.S. Department of Agriculture’s Economic Research Service (ERS) reports that China accounts for approximately 17% of U.S. agricultural exports. China remains a key market for many U.S. producers (table 1).

Table 1 

China’s share of U.S. agricultural exports: China remains a key market for many U.S. producers

Remembering the 2018 Trade War

In 2018, President Trump announced several rounds of tariffs on Chinese imports under Section 301 of the U.S. Trade Act of 1974. China wasted no time in retaliating and targeted U.S. agriculture. U.S. agricultural export losses due to the trade war totaled $27.2 billion, or annualized losses of $13.2 billion. The U.S. government provided farmers with financial assistance to help weather the storm, allocating nearly $28 billion in direct payments to farmers over 2018 and 2020. If China and other countries retaliate again, similar export losses may follow. 

Soybeans, corn, and wheat were among the commodities that suffered the greatest export losses, alarming industry participants. Within two to three years, however, U.S. export values mostly bounced back albeit with a slightly different country mix. The experience revealed strengths and vulnerabilities in U.S. agriculture. Over the long term, fundamentals like U.S. soil fertility, yield, and innovation work in the sector’s favor. But the growing uncertainty around trade policy and deterioration of U.S.-China relations loom large. As Brad Lubben, a University of Nebraska-Lincoln agricultural economics professor, noted, “Supply chains and markets shifted, with countries like Brazil and Argentina exporting more soybeans to China to fill the demand previously filled by U.S. farmers.” 

Will Financial Assistance for Farmers be there Again?

The Trump Administration’s financial assistance to farmers over 2018-2020 was made possible with funds from the Commodity Credit Corporation’s Market Facilitation Program. The Commodity Credit Corporation (CCC) is a government-owned entity within the U.S. Department of Agriculture (USDA). Trump was able to draw upon that USDA account. In 2018, $12 billion was withdrawn to be allocated to U.S. farmers. In 2019, $16 billion was withdrawn for a total of $28 billion (just about matching the export loss U.S. farmers incurred due to the trade war). 

The Trump Administration did not require congressional approval for these payments since the CCC already had the authority to disburse funds for farm assistance. 

The U.S. government could use the CCC again to support farmers if another trade war occurs, but there are some limitations and political considerations.

For one, the CCC has an annual borrowing limit of $30 billion from the U.S. Treasury. The USDA can unilaterally use CCC funds for farm aid without requiring congressional approval if it falls within the CCC’s mandate.  

As of now, USDA still has broad discretion to use CCC funds. There are alternative mechanisms. For instance, instead of using the CCC, the government could provide direct congressional appropriations, although that would require legislative approval. Other emergency aid programs (e.g., disaster relief) could be used if a new trade war leads to farm losses that exceed $30 billion.

The Big Upfront Hits on Key Commodities

China accounted for the vast majority (94%) of U.S. agricultural export losses due to retaliation (table 2). 

Table 2 

Estimated U.S. agriculture export losses 2018–2019 

Following China’s retaliation, U.S. exports of soybeans, wheat and corn fell by 77%, 61% and 88%, respectively. 

U.S. soybean exporters took the brunt of it, absorbing 71% of the annualized losses caused by retaliatory tariffs; corn and sorghum absorbed 8%. Nebraska also took more than its fair share of export losses—the state represents 4.6% of US agricultural exports but represented 5.6% of the export losses. 

Partial Truce

In January 2020, the United States and China called a partial truce and signed the Phase One trade deal, officially known as the U.S.-China Phase One Economic and Trade Agreement. As part of the Phase One deal, the United States agreed to suspend further tariffs and even reduce some existing duties. China agreed to a series of changes that would make it easier for U.S. businesses to operate in China, and to purchasing $40 billion of agricultural products per year on average from the United States for two years. A few months later in March 2020, China began to exempt some products from its retaliatory tariff lists, including soybeans and pork. 

China did not fulfill its Phase One commitments although agriculture fared better than other sectors. Chad Bown found that China’s purchases of U.S. agricultural products over 2020 and 2021 reached 83% of the Phase One commitment, which was better than manufacturing (59%) or services (54%). 

Non-trade factors are important in understanding post-Phase One activity. For instance, China’s economic slowdown (associated with the global pandemic) likely hindered, in part, its ability to fulfill its Phase One purchasing commitments. Meanwhile, China’s rebuilding of its pig herd, which suffered African Swine fever in 2019, contributed to its expanded pork imports from the United States. 

Since the trade war, many industry observers have focused less on import values and more on market shares, specifically, U.S. agriculture market share of China’s imports. By that metric, there was some bounce back to nearly pre-trade war shares, but it appears tenuous. In 2017, the year before the trade war, U.S. agricultural market share (by value) in China was 20%. That share dropped sharply to 12% in 2018 and even further to 10% in 2019. But by 2022, the U.S. share of China’s agricultural imports reached 19%, just one percentage point shy of the pre-trade war share. 

However, China has indicated a desire to diversify away from the United States in key agricultural products such as corn and soybeans as a way to shield itself from any fallout from trade wars. Other suppliers including Brazil, Argentina and South Africa are reportedly keen to take advantage of US-China trade tensions—Argentina recently received approval from the Chinese government to ship corn to China. 

No Substitute for Market Access

Fundamentals like yields and innovation bode well for the future of U.S. agriculture, but even those advantages have limits. Yields for U.S. major crops tend to be on the higher end across the world’s largest exporters (table 3). For the last three marketing years, U.S. yield was the second highest in soybeans, by far the highest in corn, and the third highest in wheat. But Brazil achieves slightly higher yields on soybeans, a crop with relatively low fertility needs. And while Brazil’s corn yields are less than half U.S. yields despite their higher usage of fertilizer, Brazil has two, sometimes three growing seasons for corn. 

Table 3 

Major crop yields and production across top four exporters for soybeans, corn and wheat, average 2022-2024 

On innovation, the United States generally has a more robust research and development infrastructure in the ag biotech sector, which will only become more important as agricultural producers struggle to adapt to changing weather patterns and new diseases. Maintaining a strong innovation climate requires the U.S. to maintain its robust patent system and intellectual property rights environment. 

Market Relief is Great, but Farmers Seek More Trade and New Markets

In sum, retaliatory tariffs imposed by China and others initially dealt a big blow to U.S. agricultural exports, particularly in key commodities like soybeans, corn, and wheat, and particularly for Nebraska exporters. At first, these sectors exhibited resiliency and U.S. shares in China’s agricultural imports nearly recovered to pre-trade war levels, but now they appear to be dropping off again. Further, while yields and innovation tend to favor U.S. agriculture relative to key competitors, another bruising trade war will further invite other market participants to step in. 

Secretary of Agriculture Brooke Rollins initially elicited cautious optimism from U.S. farmers. Her proactive stance in addressing the potential repercussions of trade tensions on U.S. agriculture is welcome, but America’s farmers and ranchers have repeatedly called for greater market access abroad, a science-based agricultural trade policy, and pursuit of strong ag biotech provisions in future trade agreements, which are more consistent with long term viability in U.S. agriculture. 

This sentiment was strongly reinforced in American Soybean Association President Caleb Ragland’s recent interview with AgriPulse in which he said, “Market relief is great, but the reality is that it’s a band-aid on an open wound. What we need is trade, free trade, open trade, more of it, new markets, more markets that already exist. We’ve got to find ways to increase demand for our products because long term, that it the only thing that is going to keep the farm economy strong and productive.”

Opinions expressed are solely those of the author and not the Yeutter Institute or the University of Nebraska-Lincoln.

Christine McDaniels is a Non-resident fellow for the Yeutter Institute and a Senior Research Fellow at the Mercatus Center. 

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