Trade war impact on ag exports was greater than it appears, say economists

Five say the Sino-U.S. trade war slashed far deeper into U.S. farm exports to China than it appears by simply tallying sales before and after the tariffs were announced.

President Trump’s trade policy of tariffs and confrontation resulted in retaliatory tariffs on nearly $30 billion worth of U.S. agricultural exports during the 2018/2019 marketing year. The lion’s share of those tariffs were imposed by China. Now five economists, writing in the latest issue of Choices magazine, say the Sino-U.S. trade war slashed far deeper into U.S. farm exports to China than it appears by simply tallying sales before and after the tariffs were announced.

They calculated that exports of products subject to Chinese tariffs “were down by 71%, on average, compared to the same product-month periods in the 2016/2017 benchmark” year, before the trade war. “Importantly, this result is significantly higher than a simple before-and-after comparison of trade flows.” Overall, U.S. ag exports to China fell by 58% in 2018/2019 from the previous trade year.

The larger impact was found when an econometric analysis was applied to the direct and indirect impacts of the tariffs on U.S. exports and the trade patterns of competitor nations, according to the article’s authors. Choices is published by the Agricultural & Applied Economics Association. The analysis took into account such “confounding factors” as the record-large 2018 U.S. soybean harvest, which ordinarily would have boosted soy sales to China. “In these settings, before-and-after comparisons are likely to underestimate the impact of tariffs.”

“The model-based findings … estimate what trade ‘should be’ in the absence of retaliatory tariffs and find a much higher trade impact,” says the article, which also estimated the impact of retaliatory tariffs on trade with a handful of other trading partners. Sales of products targeted by tariffs fell by 48% to Turkey and by 38% to the EU, based on monthly product-line flows. Similarly, exports of products targeted by Mexico fell by 22%.

“Interestingly, the impacts of Canadian retaliatory tariffs were statistically insignificant,” said the economists. The U.S.-Canada agricultural market is highly integrated, said the authors in listing possible factors for results that were “not distinguishable from zero.” In addition, Canada imposed lower tariffs, 10%, than other nations and levied them on a variety of processed foods.

The article was written by Jason Grant, Charlotte Emlinger, and Mary Marchant, who work in the economics department at Virginia Tech, and Sharon Sydow and Shawn Arita, who work in the USDA office of the chief economist. The chief economist’s office produced reports used to justify Trump tariff payments that could total $14.5 billion for 2019 crops and livestock.

Meanwhile, the National Foundation for American Policy, a think tank, said the administration spent more in two years to mitigate the impact of the trade war on agriculture than it spent on either nuclear weapons or NASA in fiscal 2019.

“The $28 billion spent on farmers is not free money but additional government (and deficit) spending,” said the think tank in a report. “The aid to farmers warrants congressional oversight and an appreciation that policies that promote free trade among nations are less likely to require large amounts of government spending to shield U.S. exporters from trade retaliation.”

To read the overview article in Choices, click here.

To read the think tank report, click here.

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