How Tariffs Actually Work

April 12, 2018 12:24 PM
Chris Hurt, an ag economist at Purdue University broke it down for Chip Flory on Wednesday’s edition of AgriTalk After The Bell.

America’s farmers are well aware that there could be negative market impacts of the Chinese tariffs on agriculture products, but do you know how a tariff actually works? Chris Hurt, an ag economist at Purdue University broke it down for Chip Flory on Wednesday’s edition of AgriTalk After The Bell.

“Essentially a Chinese tariff on soybeans says if a vessel of soybeans is coming from the U.S., for that vessel to unload on Chinese soil it will have to pay a tax of 25% of the value [of the shipment],” he explained. “So for a crusher in China to buy U.S. origin beans, they are going to be 25% [more expensive] than Brazilian or Argentinian soybeans.”

How does that impact American markets? According to Hurt, it signals to the Chinese crusher that they need to buy all of the Brazilian, Argentinian and non-American soybeans they can find. Which means that countries who purchase Brazilian and Argentinian beans would end up buying American soybeans. It essentially shifts global purchasing habits while the tariffs are in place.

“The impact in China is not good,” he told Flory. “It raises the costs of U.S. beans sharply and because they’re more aggressively buying Brazilian and Argentinian beans [those prices go up] as well.”

According to Hurt, economists predict that although other countries would pick up some of the U.S. soybeans China would leave on the table, there would still be a decline in soybean demand and U.S. soybean production. He thinks American farmers would shift soybean acres to other grain crops like corn or wheat, which would then push downward pressure on the prices of those grains.

“It really would not be good for grain farmers of any kind,” he added.

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Spell Check

bad axe, MI
4/13/2018 07:37 AM

  This really has nothing to do with trade theses tariffs were put in place for the simple fact the US lost its worlds reserve currency status last October . Now the US has to start paying its bills not just print fiat to cover them like Germany did which led to Hitler and world war 2 . History always repeats itself . A dominate worlds reserve currency only lasts about forty years and its been 45 years for the US dollar. Since October most countries around the world have been converting there bank reserves over to the China Yuan . Trump is trying to bully everyone to still use his fiat dollars and no one is taking the bait. The US is 5% of the worlds population but has more internal debt than all the other world countries combined. The trouble with Donald is the world don't need the US anymore, sure we buy a lot of products from China but we pay for them with worthless US dollars that nobody around the world wants anymore .

cooper, IA
4/13/2018 08:51 AM

  that crazy poster from Michigan has a fixation and everything bad in the world is a result of that fixation. I suggest you stay buried in your bunker with your gun, gold and 2 year food supply. Your assumption on dominant currency are laughable. To start with, dominant currency could more easily be measured in centuries than years. The British empire dominated the planet for centuries as did the Roman empire before it. Most historians place the USD moving ahead of the pound sometime between the start of ww1 and 1930, Sp again closer to a century than your claim of 45 years. One thing is for certain you are no farmer as you would have went broke years ago.

Boerne, TX
4/13/2018 09:15 AM

  There is a slight error in the description of a tarrif. American soybean or any product facing a tarrif will not necessarily be 25% more than Brazilian or other nations’ goods. The price of the commodity or product coming from different nations may be different prices prior to the tarrif being applied. Also, there will be times, especially when regional shortages occurs, when American products may have been shipped / sold to other nations like Brazil prior to being resold and shipped to China. So in that case, technically it made its way to China and never had the tarrif applied. I am quite sure the person who wrote the article knows far, far more than I do and could probably explain it much better and possibly correct me on some of my comments. I actually would like to hear from them to find out if my understanding is incorrect. Thanks


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