US Agriculture Often Bears the Cost of Trade Disputes

Potential trade disputes are approaching from all directions with significant implications for American agriculture. To the north and south, the US government is renegotiating the North American Free Trade Agreement [NAFTA] with Canada and Mexico. Just last week, the three countries met in Ottawa, with many thorny issues yet to be resolved. Also last week, the US imposed a tariff of almost 220 percent on certain models of aircraft produced in Canada. West, after withdrawing from Trans-Pacific Partnership [TPP] negotiations that would have affected trade across the pacific, the government has further threatened to pull out of the US-South Korea trade agreement. The US is also considering imposing tariffs on steel imports, a move aimed at China, but which also opens up disputes to the east, specifically with Germany, Turkey, and the UK. Many of these disputes are not about agriculture, but agriculture may be affected by the fallout. In particular, even non-agricultural disputes can generate retaliatory tariffs on our agricultural exports. History provides very clear examples as to how trade disputes impact agriculture. Retaliatory tariffs are how countries respond to other countries' policies that have been found to distort trade, and that harm their domestic industry. Whenever a country enacts a new policy that may affect trade, its trading partners who are affected the most may threaten to impose tariffs in retaliation. Trade-distorting policies may include a nation deciding to pull out or rescind trade agreements (often to avoid WTO sanctions). These retaliatory tariffs, or import taxes, are meant to coerce or convince the instigating nation to reverse their policy, plus the tariffs garner income for the retaliating country. Retaliating nations can put tariffs on any export product they import from the targeted country - the products do not need to bear any relation to the industries affected by the initial trade-distorting policy. The WTO states that retaliatory measures need to stay within the same sector, defined as: Services (Business, Financial, Distribution, Educational, Communications, etc.), Intellectual Property, and Goods (the main thing we think of when it comes to trade). When it comes to the goods sector-- if a tariff on automobiles distorts trade, the retaliating nation need not target automobiles specifically, and can target any good(s)--often those targets include agriculture.Unlike other tariffs, these retaliatory tariffs can be sanctioned by the World Trade Organization [WTO] as legal penalties for trade-distorting policies. These tariffs are the last and final step in any WTO trade dispute as tariffs harm consumers in the country that imposes them as well as the country imposing the trade-distorting policy. In short, this action is often harmful to all nations in the dispute and most disputes don't reach this stage for this reason. However, when they do reach the retaliation stage, the cost of retaliation can be in the billions of dollars. This money comes both directly and indirectly out of the consumer's pocket, as markets shrink for US products and the cost of the tariff is passed to the producer. Given US agriculture's reliance on international markets, and being an industry with political clout, agricultural products are often high on the list of products targeted in retaliatory tariffs.