How Tariffs Will Impact Farmers and Consumers

Since the beginning of April, President Trump has announced a number of new tariffs on countries around the globe, most notably China. While exactly which tariffs will remain in place long-term is changing day-to-day, the trade war with China appears to only be escalating. This is certain to have major impacts on the agriculture industry, and the consumers who rely on it for food.

Trump’s tariff plan, as originally announced, contained two different “layers.” The first was a 10 percent tariff on exports from all countries, while the second was an additional, “reciprocal” tariff on 60 specific countries. The reciprocal tariff rates differed from country to country, and were ostensibly going to be applied to countries with large trade deficits with the U.S.

Just hours after the tariffs took effect, however, Trump reversed course and announced a 90-day “pause” on the reciprocal tariffs. The first layer of tariffs remains in place, however.

In the same announcement, Trump said that tariffs on China will be increased to 125 percent. This comes after the Chinese government, as widely expected, imposed retaliatory tariffs on American exports in response to Trump’s initial announcement.

How the Tariffs Will Impact Agriculture

Trump’s tariffs will have major impacts on a wide swath of American industry, and agriculture is no exception. The exact nature of those impacts, however, may not be what the president is expecting.

Ultimately, the goal of tariffs is to incentivize domestic production and disincentivize imports — in other words, to reduce international trade. But this is a mistake, says Andrew Muhammad, professor of agricultural and resource economics at the University of Tennessee Knoxville.

“International trade is a means by which you can consume beyond your ability to produce,” Muhammad tells Sentient. “It’s good for an individual. It’s good for a city, it’s good for a state and, of course, it’s good for a country.”

“Good,” of course, is relative. Increasing our consumption options in this regard might make our lives feel more plentiful, and more consumption is certainly good for producers’ bottom lines. But overconsumption is a problem; we already consume the planet’s resources at an unsustainable rate, and this definitely is not good for the environment, animals or our long term prospects as a species.

Nevertheless, it’s helpful to look at what happens when international trade is artificially restricted via taxation in the way Muhammad describes. And that’s exactly what Trump’s tariffs — and all tariffs — aim to do.

Higher Costs & Lower Profits for Producers

Although it’s impossible to say with certainty how this trade war will pan out, it’s almost certain to result in higher prices and lower profits for Americans, at least in the short term.

Higher Costs & Lower Profits for Producers

From an economic standpoint, Trump’s tariffs will likely cause pain for both agricultural producers and everyday Americans. That’s because tariffs usually cause what’s called a price wedge — a type of economic inefficiency that results in buyers paying more, and sellers earning less, than they otherwise would have.

On the production side, the tariffs will make business less profitable and more costly. Retaliatory tariffs on the U.S. will result in less international demand for American agricultural products, which will hurt agricultural exporters’ bottom lines.

Any American company that sells beef to China, for instance, will see a dip in their profits thanks to the tariffs, as their products will suddenly cost more for Chinese buyers. This, in turn, will incentivize Chinese importers to buy from non-American sources instead, and it’s already started happening: Since Trump’s tariff announcements, China has started buying more beef from Brazilian producers, a move that experts predict will lead to increased deforestation in the Amazon.

But it’s not just exporters. A whole lot of farming equipment is manufactured abroad, and even products that are built in America are often sourced from foreign parts. Because of this, any agricultural producer who uses foreign products at all will have to pay more for them than they would without the tariffs. This applies to tractors, backhoes, combine harvesters, captive bolt pistols and any other piece of equipment that might reasonably be used on a farm.

Muhammad points out that, thanks to the complex and highly interconnected nature of modern economic markets, plenty of agricultural producers who might not think of themselves as exporters or importers are nevertheless deeply enmeshed in international trade, and will be impacted by the tariffs.

“Whether you think you’re connected to global markets or not, there’s a high likelihood that a retaliatory tariff will depress the prices you receive in the market,” Muhammad says. “Trade dynamics with China will filter down into the market prices [producers] receive.”

Higher Prices for Consumers

All of the above factors mean that American food producers will likely make less money than they were before as a result of Trump’s tariffs. The cost of doing business will go up, and if history is any guide, producers will respond to this by charging more for their goods.

A key factor for producers is whether the Trump administration’s U.S. Department of Agriculture will provide financial relief to farmers as the Department did during President Trump’s first term.

For now, it appears Americans will almost certainly be paying more money for groceries than they were before. Foods that are primarily or largely sourced from other countries will likely face the highest price hikes, and Muhammad cites hamburgers as a prime example of this.

Beef As Case Study

The U.S. beef trade is a complicated topic, as America is both a leading exporter and a leading importer of beef. This might seem odd, but it’s because beef is sourced and produced in different ways depending on the country. Generally speaking, the U.S. imports lower-quality forms of beef and exports higher-quality cuts.

Burgers are made from ground beef, and between 20 and 30 percent of ground beef in America is imported from abroad. American burger producers are especially reliant on imported lean trimmings, a lower-quality form of meat that they combine with domestically produced fat trimmings to create ground beef.

Tariffs will make it more expensive for these producers to acquire lean trimmings from abroad. You might think that this would compel them to purchase more trimmings from American cattle farmers; however, due to the way cattle is fed in the U.S., American beef farmers are not well-equipped to produce lean trimmings at the volumes needed to replace foreign trimmings.

Of course, retaliatory tariffs make it less profitable to export beef, too. With that being the case, couldn’t U.S. farmers simply use high-quality, domestically produced cuts of beef that they otherwise would have exported to fill the gap in lean trimmings?

Not exactly. In addition to the fact that this would result in a different-tasting burger that customers might not prefer, ground beef goes for a cheaper price on a per-pound basis than steaks, roasts and other products made using high-quality cuts of beef. It wouldn’t make economic sense for beef producers to grind up that meat and sell it for a lower price than they were receiving before.

“It has sort of two compounding effects,” Muhammad says. “You have depressing beef prices in terms of what we export, but inflating beef prices in terms of what we import. And since we export something very different from what we import, that’s not going to balance out.”

No matter how you slice it, the end result is the same: more expensive burgers.

(Some) Empty Shelves

In addition to raising prices for everybody, buyers of agricultural goods could face an additional consequence due to the tariffs: shortages.

This doesn’t mean Americans will suddenly be facing a food scarcity crisis. What it does mean is that some manufacturers might be disincentivized to produce certain foods, specifically those with very low margins.

Blueberries, for instance, have a very low markup. They’re only sold for slightly more than they cost to produce, and so in order to be profitable, producers need to sell them in very high quantities. But if the price of importing them increases, even by a little bit, it may no longer be profitable to sell blueberries at all.

“If you are an importer of blueberries, you’re making your money off the fact that a bunch of people will buy blueberries, not that on a per-unit basis, you’re making a high [profit],” Muhammad says. “When tariffs make that low markup non-competitive — when you can’t pass the price along to consumers, because they’re only going to pay so much for blueberries — you could actually then see some decreases in availability, as well as higher prices.”

In a broader sense, any agricultural goods that can’t be produced domestically, or can only be produced in relatively small quantities, may be in short supply as well. This includes out-of-season fruit and vegetables, and goods that are required to be made in another country, such as Mexican beer or Scotch whiskey.

Will Tariffs Increase Domestic Food Production?

The “upside” of tariffs, at least according to their proponents, is that they make domestic producers more competitive with their foreign rivals. Will U.S. food producers “rise to the challenge,” and begin producing more food domestically?

Not necessarily. Making more food in the U.S. would require farmers to increase their production capacities, and this costs money. But such an investment would only be worthwhile for as long as the tariff is in place; the moment it’s gone, this excess production capacity becomes a wasted investment, as there’s no longer a market for the extra food being produced.

As Trump has already shown, tariffs often don’t remain in place for very long. The administration has even stated that the tariffs are a “negotiating strategy,” and as such, American firms have little incentive to treat them as anything other than temporary. 

“All they’re gonna do when they’re temporary is just raise prices,” Muhammad says. “In theory, they’re supposed to also increase domestic production. But unless there’s some excess capacity unrealized, where we can ramp up production without investment, you won’t get any increase in output unless someone can guarantee that the tariffs are permanent. But the problem is, even if they last four years, that’s still not permanent.”

Will Tariffs Increase Farm Consolidation?

Over the last half-century or so, small farms have increasingly been acquired or put out of business by large agricultural producers. This phenomenon is referred to as consolidation, and because tariffs will hurt farmers’ bottom lines, they could accelerate consolidation in the agricultural sector.

But they might not, either. Muhammad says that, although increased consolidation is a possibility, large producers may be reluctant to buy up smaller farms, given that the tariffs may only be temporary.

“If I wanted to acquire another firm, I would need to know that these tariffs are in place for life,” Muhammad says. “What’s the point of investing in expanding capacity to take advantage of economies of scale when I need a tariff to still be competitive?”

The Bottom Line

This isn’t the first time Trump has waged a trade war. He did so during his first term as well, and the results were not good: The U.S. economy shrank, American companies lost nearly $46 billion and an estimated 300,000 Americans were put out of work.

It’s too soon to say exactly what the results of these new tariffs will be. But there’s little reason to believe that they’ll be any different than the last time, and if that’s the case, things are going to get a lot worse before they get any better, including in the agricultural sector.