Dr. Trey Malone

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Agricultural Tariffs 101

I’ve had RFD-TV‘s Market Day Report on for most of today in an effort to stay informed of the current sentiments regarding trade retaliation from China.  Ag economists Wally Tyner and Chris Hurt from Purdue made some great points about the current situation.   Exports of agricultural products from the U.S. to China totaled $19.6 billion in 2017, so this could be a big deal for the agri-nation.  The big mover is likely to be soybeans, which forecasts suggest Chinese soybean imports from the U.S. could drop by as much as 71 percent if the proposed tariffs go into effect.  Other important products currently targeted include pork, although U.S. pork exports to Chinese markets represent a smaller portion of the U.S. market compared to demand from elsewhere.  There could be some impacts on food waste and pork producer profitability because Chinese consumers enjoy certain variety cuts of pork more than their American counterparts.  That being said, it seems appropriate to post a few broad comments on tariffs and what they might mean for the agricultural industry.

  • What is a tariff?

In simple terms, a tariff is a tax on imports.  Tariffs artificially inflate the market price of a product which, in turn, reduces the quantity demanded as well as the price likely to be taken home by producers.

  • How common are they?

Tariffs have been around for centuries.  Alexander Hamilton implemented the first U.S. tariff as far back as 1789.  There have been a few really famous tariffs over the past century , such as the “Chicken Tax” of 1963 (which arguably gave us the American pickup truck, of all things).  Probably the most  (in)famous was the Smoot-Hawley Tariff Act of 1930.  To quote one assessment:

The Smoot-Hawley tariff, enacted on the eve of the economic collapse of the early 1930s, will forever be associated with an outbreak of worldwide protectionism, the collapse of world trade, and the onset of the Great Depression.  (Irwin, 1998; pp. 326)

If you’re interested in how this played out, NPR’s Planet Money has a fantastic podcast episode on Smoot-Hawley (Title: “Worst. Tariffs. Ever”).  Tariffs have become one of the least popular development mechanisms for economists; more than a thousand economists pushed back against Smooth-Hawley in the 1930’s.   To this day, most economists are against tariffs.  Last month, not a single economist in the Chicago Booth’s panel of economists agreed with or were uncertain about the statement, “Imposing new US tariffs on steel and aluminum will improve Americans’ welfare.”  It’s probably safe to say the (near) consensus view of economists is that tariffs are not great.  The most famous exception being Peter Navarro.

One of the big concerns surrounding tariffs is retaliation.  It appears as if China is responding tit-for-tat.  In other words, China might just continue to match our tariffs with their own similarly sized tariffs.   This might seem puzzling given that:

“One of the main lessons of the theory of international trade is that a unilateral reduction of tariff barriers is beneficial to the country granting it, whether or not other countries reciprocate.” (Hovi, 1998; pp. 69)

It’s not so confusing if you think less about economics and more about psychology.  For example, behavioral economists use the “ultimatum game” to show that people are willing to forego benefits to themselves in order to punish someone who they think harmed them.

  • What does this all mean for U.S. agriculture?

The fallout of this tariff battle could be felt for decades – or it could simply induce important bilateral trade negotiations.  The timing of the Chinese tariffs on U.S. goods is linked to the timing of the U.S. tariffs on Chinese goods.   Also, the items targeted by China seem to be pretty well correlated with the places were many Trump voters live.   Quite a few of the targeted crops are specialty products, which means Michigan growers might have a special reason for concern.  Either way, the story will continue to develop.

Here is a quick list of the list of agricultural commodities scheduled to receive a Chinese tariff.  According to CNBC, the April 4 agricultural commodities currently on the block are:

  • Yellow soybeans
  • Black soybeans
  • Corn
  • Cornflour
  • Uncombed cotton
  • Cotton linters
  • Sorghum
  • Brewing or distilling dregs and waste
  • Other durum wheat
  • Other wheat and mixed wheat
  • Whole and half head fresh and cold beef
  • Fresh and cold beef with bones
  • Fresh and cold boneless beef
  • Frozen beef with bones
  • Frozen boneless beef
  • Frozen boneless meat
  • Other frozen beef chops
  • Dried cranberries
  • Frozen orange juice
  • Non-frozen orange juice
  • Whiskies
  • Unstemmed flue-cured tobacco
  • Other unstemmed tobacco
  • Flue-cured tobacco partially or totally removed
  • Partially or totally deterred tobacco stems
  • Tobacco waste
  • Tobacco cigars
  • Tobacco cigarettes
  • Cigars and cigarettes, tobacco substitutes
  • Hookah tobacco
  • Other tobacco for smoking
  • Reconstituted tobacco
  • Other tobacco and tobacco substitute products

Previously listed products, according to Fortune Magazine , include agricultural products such as:

25% tariffs:

  • Fresh or cold boned pig forelegs, hindquarters, and their meat
  • Other fresh or cold pork
  • Other frozen whole head and half pork
  • Frozen bone forelegs, pigs’ legs, and their meat
  • Other frozen pork
  • Frozen pork liver
  • Other frozen pork chops

15% tariffs:

  • Dried coconut
  • Coconut without inner shell
  • Other coconut
  • Unhulled Brazilian nuts
  • Shelled Brazilian nuts
  • Unshelled cashews
  • Shelled cashew
  • Unshelled almonds
  • Shelled almonds
  • Hazelnuts
  • Unshelled hazelnuts
  • Unshelled walnuts
  • Walnut kernels
  • Unhealed chestnut
  • Other shelled chestnuts
  • Unhulled pistachio fruit
  • Hulled pistachi nut
  • Other unhealed macadamia nuts
  • Roasted macadamia nuts
  • Betel nut fruit
  • Pine nuts
  • Other fresh or dried nuts
  • Fresh or dried plantain
  • Other fresh or dried bananas, except for plantains
  • Fresh or dried dates
  • Fresh or dried figs
  • Fresh or dried pineapple
  • Fresh or dried avocados
  • Fresh or dried guava
  • Fresh or dried mango
  • Fresh or dried mangosteen
  • Fresh or dried orange
  • Other citrus (including mandarin and satsuma oranges)
  • Clementine orange
  • Virgin orange and similar hybrid citrus
  • Grapefruit, including pomelo
  • Lemons and limes
  • Unlisted citrus fruit
  • Fresh grapes
  • Raisins
  • Fresh watermelon
  • Fresh cantaloupe
  • Papaya
  • Fresh apples
  • Fresh pears
  • Fresh sour cherries
  • Other fresh cherries
  • Peaches, including nectarines
  • Fresh plum and promos
  • Fresh strawberries
  • Fresh raspberry, blackberry, mulberry and Logan berry
  • Fresh cranberry and cowberry
  • Kiwi
  • Fresh durian
  • Persimmon
  • Fresh lychee
  • Fresh longan
  • Rumbatan
  • Fresh sweet lychee
  • Fresh carambola
  • Fresh lotus fog
  • Fresh pitaya
  • Fruits not listed
  • Frozen strawberries
  • Frozen raspberries, blackberries, mulberries, rose hips, currant and gooseberries
  • Frozen fruits and nuts, not listed
  • Other temporarily preserved fruits and nut
  • Fried apricots
  • Mei Qiang and Li Gan
  • Dried apples
  • Dried longan and meat
  • Dried persimmons
  • Red dates
  • Dried litchi
  • Dried fruits not listed
  • Assorted nuts or dried fruits
  • Sparkling wine
  • Other fresh brewed wines packing containers of 2-liters or less brewed with alcohol
  • Wines brewed with other fresh grapes packed in 2-liter containers, but not more than 10 liters
  • Wines made from other fresh grapes packed in containers of 10 liters or more
  • Other items from grape juice wine
  • Modified Ethanol and other alcohols of any concentration
  • American ginseng
  • Other fresh ginseng
  • Unlisted ginseng

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