FOCUS ON AG | March Column

Written by Kent Thiesse, farm Management Analyst

POTENTIAL TARIFFS HAVE FARMERS CONCERNED

In most years during the late Winter months, farm operators focus on Spring planting decisions for the coming crop year and look for favorable opportunities to market their anticipated corn and soybean production. However, in 2025, an additional item on the mind of many farmers is the threat of potential tariffs on goods and services that are traded between the United States with Canada, Mexico, and China. Many items that the U.S. imports from the three countries could potentially be affected by the added tariffs on a wide range of goods and products, including some items that impact agriculture production. Probably the biggest concern for ag producers is the possibility of retaliatory tariffs that may be placed on U.S. agricultural products are being exported to Canada, Mexico, and China.

Earlier this year, President Trump announced a 25 percent tariff on goods being imported into the United States from Canada and Mexico, due to concerns with border security and drug trafficking issues. The implementation of those tariffs were initially delayed; however, it has now been announced that those tariffs could go into effect very soon. Canada and Mexico have announced that tariffs on U.S. exports being shipped into their countries could be implemented in retaliation. Ag leaders hope that trade negotiations will continue between the U.S. and its neighboring countries to avoid the implementation of the tariffs; however, the threat is still there. The primary reason for the potential tariffs is the negative trade balance between the U.S. and those countries.

The Trump Administration has also announced an additional 10 percent tariff on many goods being imported into the U.S. from China. This is addition to the existing tariffs on Chinese goods that were already in place, many with were implemented earlier. China then announced some retaliatory tariffs on some U.S. exports entering China; however, there was very little impact on agriculture. During President Trump’s first term in office (2017-2020), a series of widespread tariffs were implemented on Chinese imports into the U.S. in 2018 and 2019. China then responded with a series of retaliatory tariffs on U.S. exports going into China. This resulted in a decline in U.S. ag exports of $27 billion dollars in 2019, with soybean exports accounting for approximately 71 percent of the decline. Most of the soybean export reduction was on sales to China.

The U.S. trade war with China ended in 2020 with the initiation of a new “Phase 1” trade deal between the two countries. This resulted in China making major purchases of U.S. soybeans and corn from 2020 to 2022. In 2022, China purchased over $36 billion of U.S. agricultural products, which declined significantly in 2023 and was estimated at just over $23 billion for 2024. The failure of China to fully meet the purchase commitments of U.S. ag products that were prescribed in the “Phase 1” trade agreement is causing some of the current trade tensions with China. This has resulted in the possible initiation of additional tariffs on Chinese imports. China has been sourcing a greatly increased amount of their soybean imports from Brazil and other South American countries in recent years. Brazil exported nearly twice the total value of soybeans to China in 2023, compared to the U.S.

Prior to 2013, U.S. had a positive agricultural trade balance, meaning that the annual value of U.S. ag exports was higher than the value of the ag products imported into the U.S. from other countries. Agriculture imports into the U.S. have grown by an average of 6.6 percent per year since the 1990’s, reaching a total of $215 billion in in 2024. In recent years, U.S. imports have exceeded exports, primarily due to a significant increase in the amount of fruit, vegetables, and specialty products being imported into the U.S. from Mexico and Canada.

U.S. agriculture exports have also grown substantially in recent years. U.S. ag exports were at nearly $157 billion dollars in 2014, before declining to a range of $133 to $148 billion dollars from 2015-2019, partially due to the trade war with China. U.S. ag exports rebounded to nearly $197 billion in 2020, following the Phase 1 trade deal with China and increased purchases of U.S. ag products by Canada and Mexico. Since 2020, total U.S. ag exports have gradually declined.

The primary U.S. agriculture export products are soybeans, corn, and pork. A potential trade war with these countries involving retaliatory tariffs on U.S. ag products, could have major impact on farmers and the ag industry in the Midwest, where most of these products are produced. In recent years, slightly over 40 percent of U.S. soybeans have been exported, along with about 20 percent of the corn and 25 percent pork produced in the U.S. It is estimated that nearly two-thirds of the soybeans raised in Minnesota are exported to other countries on an annual basis. The total value of U.S. soybean exports to China each year is more than the total soybean export value to the next nine countries combined. Mexico, Japan, and China are the top destinations for U.S. corn and pork products.

Following the initiation of the trade war with China in 2018, along with the threat of tariffs on goods from Canada and Mexico, November soybean futures dropped nearly $2.00 per bushel. Cash soybean prices in Southern Minnesota declined by over 15 percent during weeks following the initiation of the Chinese tariffs, with some soybean price bids falling below $8.00 per bushel. The national “market year average” soybean prices were $8.48 per bushel for 2018-19 and $8.57 per bushel in 2019-20, which are the lowest annual average soybean prices in the past fifteen years. There was also a significant decline in hog prices due to decreases in export levels during those years. Due to the economic hardship on ag producers in 2018 and 2019, USDA issued approximately $23 billion in “market facilitation payments” to farmers during that period to offset the losses.

In addition to concerns for ag exports, Upper Midwest farmers are also concerned with potential rising prices that may result from tariffs on Canadian imports of fertilizer, fuel, lumber, and other farm inputs. Potash fertilizer is the primary source of potassium fertilizer for corn and soybean production. The U.S. imports 90 percent of the potash that is used in crop production, with Canada being the leading exporter of potash to the U.S. Canada has also exported a significant amount of nitrogen fertilizer for crop production into the U.S. in recent years. If the U.S. places large tariffs on potash and nitrogen fertilizer that is imported into the U.S., it could cause significant increases in fertilizer prices for Midwest crop producers.

A full-fledged “trade war” between the U.S. with Canada, Mexico, and China would likely have a serious economic impact on all of the countries. Farm operators, agricultural suppliers, and rural communities in the Midwest would likely be especially hard-hit economically by a “trade-war”. Fortunately, thus far it has mainly been threats, and trade negotiations between the various countries are continuing. The agriculture industry is hoping that a workable agreement can be reached before the situation escalates any further.

In many instances when we listen to the national media, we think of trade policy and tariffs being played out by Presidents and government leaders, and only having an economic effect at a “macro level” on a national basis. In reality, the impacts of tariffs and declining trade relations are more likely to affect individual farmers and businesses that rely on export markets to sustain their businesses. The negative profit margins can force some farms and businesses to reduce or discontinue their operations. These policies also have a major impact on individuals who work in industries that support those farms and businesses, and the families and communities that depend on this economic base.