President Donald Trump signed an executive order on July 31 modifying “reciprocal” tariffs on dozens of countries, but it remains to be seen which countries will retaliate to the rate increases.
In the meantime, the current tariffs, in place since April, are generating revenue for the U.S. Longer term, the hope for agriculture is increased sales through tariff-leveraged trade deals.
Tariff Increases Raise Baseline Rate
Most of President Trump’s tariff increases kick in Aug. 7. Baseline rates for many countries remain unchanged at 10% from the duties imposed in April. However, the average U.S. tariff rate will rise from 13.3% to 15.2% if rates are implemented as announced, according to Bloomberg Economics.
“The target rate appears to be 15%,” says Alan Brugler, A&N Economics, Inc. “It doesn’t affect all goods, but it does cause your cost of production to go up, and it also gives cover for companies that have competitors that have got imports to raise their own prices.”
On the heels of Trump’s Thursday announcement, the stock market had a negative reaction.
Ag Markets See Less Affect From Tariff Increases
Ag markets have had a more muted reaction as top trading partners Canada and Mexico have exemptions for USMCA-compliant goods ad that includes most agricultural products. Other major ag trading partners, such as the EU, South Korea and Japan, brokered tariff rates at 15% as part of frameworks.
Dan Basse, president, Ag Resource Company, says many countries have agreed to higher rates than they were paying in April.
“We have frameworks for trade deals and the Trump administration saying, we’re going to give you a tariff rate that’s higher than it is today,” Bassee says. “That seems crazy to even say, but many of these trade deals are being done at 15% or 20%, which is above the 10% level today.”
Agriculture Not a Big Part of Announced Frameworks
Agriculture hopes the tariffs lead to trade deals and more sales. However, Basse says agriculture hasn’t been a big part of the frameworks and they’ll take time to complete.
“We may have the framework of a trade deal, but we don’t have all the i’s and t’s dotted. It leaves the commodity markets lacking understanding in terms of what it means for future demand,” he explains.
Tariffs Generate Revenue for U.S. Treasury
Is there a silver lining to the tariffs? Brugler says it might be the money being generated for the U.S. Treasury.
“At the current rate, we would have about $350 billion a year raised in tariff money that goes against the budget deficit, or it potentially could be handed out as a check to the U.S. consumer ahead of next year’s midterm elections.”
Now with the new Aug. 1 tariff rates, Brugler says those revenues will continue to increase.
“If [tariffs] really go up to 15% or 18%, or somewhere in there, as an average that revenue could be $450 to $500 billion. It’s not on anybody’s radar as to where that money’s going to be applied,” he adds.
China Not Included in Aug. 1 Tariff Rates
Friday’s new tariffs didn’t apply to China, which remain at 30%. After tariff talks in Stockholm last week, President Trump will decide whether to extend the tariff truce set to expire Aug. 12.
