Ag economists increasingly fear trade war impacts

Economists fear President Trump’s trade/tariff stance could push ag into a deeper recession.

Ag Economists Monthly Monitor3.PNG
Ag Economists Monthly Monitor
(Farm Journal)

Agricultural economists are growing even more pessimistic about the state of the ag economy. A majority of ag economists are concerned President Donald Trump’s tough trade and tariff stance could push agriculture deeper into a recession while also giving Brazil more of a competitive edge. The stakes are high with the key being whether U.S. agriculture can survive without China.

Ag in ‘peak uncertainty’ due to tariffs

The Ag Economists’ Monthly Monitor, a survey of nearly 70 ag economists nationwide, showed 72% of those surveyed say the row crop side of agriculture is in a recession, up from 62% last month. Some 82% of economists also think this could force more industry consolidation.

Reasons why row crops sector is in recession:

• Compressed margins and concern about operating debt carried over from last year.

• Prices for most crops have declined more since 2022 than production expenses.

• Negative returns for at least the 3rd consecutive year across nearly all row crops.

Reasons why row crops sector is not in recession:

• “Profit opportunities are there, but slim.”

• “Economic performance and growth of U.S. ag is slowing and/or stable but not declining. It’s too early for the impacts of tariffs to change business decision-making in ag.”

• “Given the volatility in the crop session, a recession requires at least two bad return years, where returns include both private market and government payments. We do not know about 2025 yet, nor do we know the extent of government payments for 2024 crops yet and thus what will be the total return for 2024.”

“There is both the camp that we are in the midst of a long-term recession and those that feel land prices are holding because the built-up equity in farm operations. Both can be true,” responded one economist.

Drivers of economic concern in agriculture

In the April survey, 42% of economists said the current state of the ag economy is “somewhat worse” than a month ago, while 26% said it’s unchanged. But when you compare outlooks to a year ago, 58% of economists responded the ag economy is somewhat worse.

Economists were asked to list the two most important factors driving agriculture’s economic health today, as well as in 12 months. Tariffs and trade war topped the list.

“Weather will always be one of the primary factors, but we can add President Trump’s efforts to restructure global trade to that list this year. We’re in worse shape if he fails and better shape if he succeeds. Big stakes,” said one economist.

“Direct and indirect effects of tariff policies and the state of the general economy, said another economist.

“Uncertainty makes it quite difficult to plan, exposing agriculture to some nasty bullwhip effects due to conflicting information in both inputs and outputs,” responded one economist.

In addition to tariffs and the trade war, economists also said:

• Inflation

• Interest rates

• Political uncertainty

• Consumer demand

• Status of trade issues and the supply-side (crop size) of the balance sheets.

• The inability of farmers to manage price volatility due to uncertainty around trade

Short-term pain doesn’t guarantee long-term gain

According to the Trump administration, when it comes to tariffs and the impact on the overall economy, long-term gain will be worth the short-term pain. However, when it comes to agriculture, the economists surveyed don’t agree. More than three-quarters (76%) of economists surveyed do not think Trump’s strategy of using tariffs as a negotiating tool will benefit U.S. ag in the long run.

The 800-Pound Gorilla: Can U.S. Reduce Its Reliance Upon China?

Agricultural exports to China have shuttered since the tariff tit-for-tat started in April. It’s no surprise considering the steep tariffs on U.S. ag products to China, including the tariff on U.S. cotton as high as 140%, 172% of pork and pork variety meat and soybeans is over 150%.

The bigger question now is if the U.S. can reduce its reliance upon China.

  • 83% of economists think the U.S. can reduce its reliance on China
  • 76% say the U.S. can function without imports from China

Among the 83% of economists who think the U.S. can reduce its reliance on China, economists said:

  • “There’s always the opportunity to reduce reliance on another nation, but it will take time and could be painful.”
  • “By virtue of tariffs so high, the US farmer has no choice.”
  • “We could reduce that reliance, but that is not the same thing as saying we should or that it would benefit the farm sector or the country as a whole.“
  • We can probably reduce our reliance, but we will be worse off.
  • “Ignoring comparative advantage is plain inefficient - and US should be looking to expand markets elsewhere in South-East Asia, i.e., look to join ASEAN.”

The other 17% of economists who don’t think the U.S. can cut back on China, the reasons were pointed, saying:

  • “Just my take, but China is such a significant buyer that the loss of China as a key importer just cannot be replaced by other markets in the near term.”
  • “Any reduction in reliance will be small. That train has left the station.”
  • “We need them to take the product. Period. We could shift product elsewhere, but China buying will always be good for the Agricultural Economy.”

One area where U.S. ag has a deep reliance on China is essential ingredients used to make herbicides and other chemistries in the U.S.

“There are simply too many inputs that are currently imported from China for use to effectively replace them all, even in the long run. This whole strategy of reducing reliance on Chinese imports is misguided,’ said one economist.

High Rewards? Potential for Trade Deal with China

The stakes are high, but the upside potential of a trade deal with China could be monumental. 61% think China and the U.S. will reach an agreement to revisit the Phase One trade agreement.

During the Phase One deal struck by the previous Trump administration, China committed to purchasing an additional $200 billion in U.S. agricultural products over the next two years, with specific targets for both 2020 and 2021. China didn’t follow through with promised purchases after Trump lost the election, but the country made massive corn buys in 2020, including the biggest single-day U.S. corn purchase on record in July of 2020, signaling progress in fulfilling Phase 1 commitments under the agreement struck earlier that year.

Since that year, Brazil has gained ground, even displacing the U.S. as the top corn exporter in 2023. Over the next decade, it’s not the U.S. that will benefit from the current trade turbulence, according to economists. Instead, the survey released economists think the United States’ biggest competitors are posted to gain the most.

  • 76% responded Brazil
  • 12% said China
  • 6% think India
  • And 6% said Ukraine.

Which Commodity Stands the Most to Gain?

Which sector has the most to gain from a trade war? It depends on which economist you ask. While some economists say they see very few gains, and “nobody wins in a trade war,” others remain optimistic.

  • “All sectors if we can get a trade agreement that forces China to buy.”
  • “Fruit and vegetable and specialty crop producers who may be insulated from competition from Latin America in the domestic market.”
  • “In the longer run, the trade war could be beneficial to livestock producers if gains can be made with increased access to European markets and even Australia.”
  • “Biofuels are an area that has ground to gain.”
  • “Renewable energy and animal feeding.”
  • “Select specialty crop producers where they compete heavily with imports for consumer demand.”
  • “Cotton only because that sector has seen a significant negative influence of global trade shifts and if a course correction takes place, it would likely benefit cotton.”

Economists were also asked to select what’s the most effective way for the ag economy to counter the long-term effects of tariffs.

  • 47% said negotiate tariff rates down around the globe.
  • 32% responded to build domestic demand for U.S. ag products

The domestic demand front could prove to be challenging, both in terms of ag products and goods. When asked “How long will it take to restore American manufacturing?” 47% responded never. 29% said it would take 10 years and 24% said it would be at least 5 years.

Bottom line on trade

The risks are high. U.S. agriculture is an export-dependent market and unless the U.S. invests in manufacturing in the U.S., and does so over an extended period, the loss from exports could be a big hit to many U.S. agriculture commodities. However, if the Trump administration exceeds and gains more trade access to key countries like India, the EU, and Southeast Asia, the rewards could be even bigger.

One Factor Not Being Covered by the Media Enough:

The trade war and tariffs continue to dominate headlines, but economists chimed in on what issues are impacting agriculture that aren’t currently being covered enough.

  • Current economic strain impact on young farmers
  • Currency exchange rates and how that’s changing trade relationships
  • Input costs for crops
  • Farm Bill and the lack of movement
  • Availability of labor
  • Restructuring of USDA
  • Shrinking workforce
  • Future biofuel policy decisions and loss of support for biofuels
  • Funding changes and the “existential threat” to future of U.S. land grant colleges
  • Risk of losing USMCA