How Steel Tariffs Are Affecting Farmers

Recent federal decisions have increased pressure on farmers

Recent steel tariffs have had a double-negative impact on the US farming industry over the last two years. The first big hit came when the tariffs on imported steel and aluminum went into effect. The cost of farming (new machinery and replacements parts for existing units) immediately shot up virtually overnight.

After the tariffs were expanded for agricultural products from China, US farmers were hit with retaliatory tariffs, and a full-out trade war had begun.

Negative Impact #1

Originally, the increased tariffs on imported steel and aluminum were unveiled as part of the “America First” economic policy developed by the Trump administration. On March 1st, 2018, the new tariff rate took effect. Overnight, the cost of imported steel rose 25%, and imported aluminum shot up by more than 11%.

These tariffs, designed to protect US steel and aluminum suppliers and manufacturers, actually increased farmers’ cost of new equipment and replacement parts by at least 6%. With no way to recoup that unforeseen added expense, their dwindling profits began to dip even more.

Then, in June 2018, metal tariffs were extended to include the European Union, Canada, and Mexico. These countries had dodged the previous tariff increases because of their “US ally” status.

Capital Steel Metal Farm Building for Tractor Storage

Manufacturers who had shifted their supply chains to keep consumer prices down now had no choice but to raise their prices for new equipment and parts. It was noted repeatedly during this timeframe that President Trump had officially put more tariffs on US allies than on China.

Many farmers who were planning on purchasing new, more efficient farm equipment began postponing those purchases. Typically, farmers replace their equipment every 5-7 years, but they are stretching that timeline a bit further now. This also means they will be spending substantially more to maintain their existing equipment for another year or two (or even longer).

No matter which scenario they choose, the overall cost of farming has increased, a shift which means less profit for our already struggling farming industries.

Negative Impact #2

President Trump has recently set new tariffs and then escalated those tariffs on other imports from China. The Trump administration claims these tariffs are to combat forced technology transfer, intellectual property abuses, and other unfair trade policy practices currently in place.

As a result of these new tariffs, China imposed retaliatory tariffs (matching the $34 billion we imposed against them) against US imports. It’s doubtful that the US agricultural market will regain its lost market share with China once the trade war has run its course.

China has already started taking their business elsewhere, and there are plenty of other supplier options to choose from. It doesn’t appear that they will be coming back to US farmers for the agricultural products they need to import anytime soon.

For example, China is now purchasing its soybean imports from Brazil. Over the last two decades, the US has become a leader in soybean production. However, soybean exports to China have decreased over 90% since the tariffs went into effect. US soybean farmers now have excess product but nowhere to sell it.

An Evolving Agricultural Paradigm

As a direct result of the retaliatory tariffs from China and other countries, US farmers have been effectively cut out of many global markets.

The end result is that tariffs put in place to protect one industry have harmed numerous others.

When we look at the big picture, here is what we see

  • US agricultural exports to China have decreased by 63% overall, from $15.8 billion to $5.9 billion, in one year.
  • The states hardest hit include:
    • Louisiana, suffering a loss of 82.5%
    • Washington, seeing exports drop 57.2%
    • Texas, now experiencing a double-digit decline in exports
    • California, showing another double digit decline/loss

It may take years for the US agricultural industry to recover their lost market share and become profitable again.

To keep the farmers solvent during the trade war and beyond, the federal government will begin paying subsidies to them. These subsidies are paid out from the taxes we all pay in.

The immediate impacts of the steel, aluminum, and agricultural tariffs have already been profound. In 2019, farm debt was a record high $416 billion. This is due to increases in costs for parts and new equipment combined with excesses of agricultural products that are not being sold.

The lower profits and increased farming costs also contributed to farm bankruptcies in 2019, which increased by 24% from 2018, when the tariffs took effect.

Farm bankruptcies are now also at their highest number since 2011.

Clearly, today’s US-based farmers have a lot on their plate.