Trade, Tariffs, & the Ag Economy June 8, 2019 Chad Hart Associate Professor/Crop Marketing Specialist chart@iastate.edu 515-294-9911 1 1

Net Farm Income Source: USDA

Farm Debt Source: Federal Reserve

Why do U.S. farmers need export markets? That’s where the customers are That’s where the economic growth is That’s where the consumption growth is We produce surpluses We only eat high on the hog Exports are crucial to farm income

96% of the world’s population lives outside the US Source: CIA World Factbook

Population growth 2017 to 2050 Source: World Bank

Top ten US ag export markets, 2017 Canada & Mexico buy 28% of US ag exports Source: US Census Bureau, Foreign Trade Statistics, FATUS export aggregations

Top 10 ag exporting states, 2017 Source: USDA Economic Research Service, “State Export Data”

Value of Ag Trade Source: USDA-FAS

U.S. Ag Exports Source: USDA-FAS

Agricultural trade with Canada NAFTA Two-way trade up 395% since NAFTA Source: US Census Bureau, Foreign Trade Statistics, FATUS export aggregations

Agricultural trade with Mexico NAFTA Two-way trade up 577% since NAFTA Source: US Census Bureau, Foreign Trade Statistics, FATUS export aggregations

Tariffs A tax on imports Used to reduce trade and protect domestic industries Has both positive and negative impacts Positive for domestic producers of the product with the tariff Negative for domestic consumers of the product with the tariff If specifically targeted against one country, then impacts are Positive for that country’s consumers Negative for that country’s producers 15 15

Example: China’s Soybean Tariff Positive for China’s soybean producers and U.S. soybean consumers Chinese soybean producers capture a higher price U.S. soybean consumers capture a lower price Negative for China’s soybean consumers and U.S. soybean producers Chinese soybean consumers pay a higher price U.S. soybean producers receive a lower price Price effects are due to supply changes Less U.S. soybeans imported by China More U.S. soybeans left on domestic market 16 16

Tariffs are a Policy Tool Can be used to: Reduce trade deficits Raise government funds Protect specific industries Serve as a bargaining chip in trade negotiations They’re not new. We’ve had tariffs on many goods since the U.S. was founded. Major shifts in U.S. tariffs in: 1789, 1790, 1792, 1816, 1824, 1828, 1832, 1833, 1842, 1846, 1857, 1861, 1872, 1875, 1883, 1890, 1894, 1897, 1909, 1913, 1921, 1922, 1930, 1934, 1947, 1962, 1974, 1979, 1984, 1988, 1994, 2002, 2009, 2018 17 17

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GATT General Agreement on Tariffs and Trade A multilateral treaty, signed by 23 countries in 1947, to promote international trade Was updated several times between 1947 and 1994, lowering trade barriers and including more countries in the agreement (reaching over 100 countries by 1972) 19 19

WTO World Trade Organization Created in the GATT update in 1994 and serves as the formal global organization for trade rules Currently has 164 country members Helps administer trade agreements Serves as a forum for trade negotiations and disputes Provides technical trade assistance and training for developing regions 20 20

WTO Members Source: WTO 21 21

Per Capita Trade Values Source: WTO 22 22

Trade in Goods Source: WTO 23 23

Trade in Services Source: WTO 24 24

Recent Trade Disputes 2002: U.S. imposes tariffs on steel Bush administration wanted to protect the U.S. steel industry from surges in steel imports Several countries were exempt from the tariffs Canada, Mexico, Argentina, and other developing countries EU, Japan, South Korea, China, and Brazil challenged the tariffs in the WTO WTO ruled against the steel tariffs, pointing out that steel imports in the U.S. had actually dropped between 2001 and 2002 U.S. removed the tariffs in 2003 25 25

Recent Trade Disputes 2009: U.S. imposes tariffs on Chinese tires Obama administration wanted to protect the U.S. tire industry as it accused China of flooding the international markets with cheap tires China retaliated with tariffs on U.S. chicken The tariffs substantially reduced trade for the selected products The tariffs were removed in 2012 However, the product markets didn’t recover to pre-tariff levels. 26 26

Beef Export Shifts Source: USDA-FAS

Pork Export Shifts Source: USDA-FAS

Sorghum Export Shifts Source: USDA-FAS

Soybean Export Shifts Source: USDA-FAS

Corn Export Shifts Source: USDA-FAS

Wheat Export Shifts Source: USDA-FAS

Rice Export Shifts Source: USDA-FAS

Cotton Export Shifts Source: USDA-FAS

Arable land

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Thank you for your time. Any questions. My web site: http://www2. econ Thank you for your time! Any questions? My web site: http://www2.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www2.econ.iastate.edu/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/