President Donald Trump may have put Canadian and Mexican tariffs on ice, but import-dependent industries serving farmers are still feeling some tariff whiplash from the near miss and are still facing new duties on China, which will leave costs of critical inputs higher, analysts say.
Trump walked back from imposing 25% duties on Canadian and Mexican imports on Saturday, but additional 10% duties have applied to all imports from China since Tuesday. For import-dependent industries like agricultural machinery, this means higher production costs.
“Additional tariffs on imports from China is going to make it more expensive to make equipment in the United States,” Kip Eideberg, senior vice president at the Association of Equipment Manufacturers, told Agri-Pulse. “This is not how you bolster American manufacturing.”
Eideberg stressed that the full cost of the tariffs was unlikely to fall on U.S. farmers and ranchers. But some portion of the tariff hikes is inevitably passed along to the consumer, he added, and shows up in higher prices.
Trump told reporters in the Oval Office on Monday that the 10% additional tariff on Chinese products is “an opening salvo,” and suggested they could rise further. China announced a retaliatory package on Tuesday that includes a 10% tariff on agricultural machinery.
The president was due to speak with China’s Xi Jinping on Tuesday, Peter Navarro, a senior White House trade adviser, said Tuesday. China is reportedly preparing its opening bid in negotiations with the Trump administration, which could include reviving the phase one agreement signed during the president’s first term, according to the Wall Street Journal.
But even if Trump officials and Beijing strike a deal, the new tariffs could still remain in place – which means prices that go up won’t come back down. After the phase one deal came into effect, for example, the average U.S. and Chinese tariff rates applied to each other’s goods fell only marginally, and to this day remain well above their pre-trade-war levels, according to a Peterson Institute for International Economics analysis.
To be sure, if Trump does impose the tariffs on Mexico and Canada on March 1, the fallout would be much worse. Eideberg said parts that go into agricultural equipment can pass across the southern and northern U.S. borders multiple times throughout the manufacturing process.
Kip Eideberg, a senior vice president at the Association of Equipment Manufacturers.“Every time that part or that piece crosses the border,” Eideberg said, it could face an additional 25% tariff if the president acts on his threats. “This is a major concern for us.”
Eideberg said the tariffs imposed during Trump’s first term increased production costs for ag equipment by 7-8%. If Mexico and Canada are tariff targets this time around, cost increases would be much higher, he argued.
Trump’s unique style of dealmaking is also creating supply chain headaches, he said.
“Nothing is worse for a business – a manufacturer, in our case – than uncertainty,” Eideberg added. “This roller coaster of tariffs implemented, rescinded, threatened, implemented, rescinded that's going to wreak havoc.”
U.S. manufacturers crave supply chain certainty after the turbulence of the pandemic, he said.
“Every time there's a big announcement like this, right, it does a lot of damage to the economy and to the industry,” Eideberg added. “I fully expect there to be further announcements down the road, more tariffs, back on, back off, back on. That's no way to live, right. That’s no way to do business. That makes it really difficult.”
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Trump also hinted that he’s angling for a tariff spat with the European Union. He told reporters Sunday that tariffs on the bloc “will definitely happen,” suggesting it could be “pretty soon.”
It’s not only farm equipment that could see lasting price impacts from this week’s tariff bluster. Canadian potash prices have already climbed from last month.
Agri-Pulse reported last week that Canadian potash manufacturers were eying price hikes, in part to capitalize on the environment of tariff uncertainty. Two analysts confirmed this week that Canada-based Nutrien – the world’s largest potash producer – has raised its prices at U.S. terminals by $25 per short ton since the beginning of last week.
“That's them essentially taking advantage of the fact that there's going to be some concern for supply security,” said Andy Hemphill, senior markets editor for potash at Independent Commodity Intelligence Service. “Buyers just kind of have to get used to the fact that things might be a little bit hairy now that Trump is in [office].”
Around 90% of U.S. fertilizer imports come from Canada. Veronica Nigh, senior economist at the Fertilizer Institute, estimates that 50-70% of the U.S. potash need for the spring planting season has been fulfilled – leaving a large quantity of potash still to make its way south of the border.
“Supply chain challenges are felt in the market, whether or not they come to fruition,” Nigh said. “When you have to move product around unexpectedly, it adds cost.”
Further, fertilizer vendors in the U.S. don’t keep large volumes of potash on hand to weather supply chain shocks, she said. Many were burned in 2008, when the price of fertilizer dropped drastically, leaving them with stores of product they could no longer sell for the price they paid.
But thin inventories mean price increases are quickly passed along to consumers, Nigh said.
With planting season quickly approaching, U.S. buyers have little time to find alternative suppliers. Potash is also not easily substituted for another fertilizer, Hemphill said, leaving little option for U.S. farmers but to pay the higher prices in the short run.
The effects of these higher potash prices could be particularly acute for orange, potato and tomato growers, which use substantially more potash per acre than other crops.
Canadian provincial leaders have shelved their own retaliatory measures against U.S. products for now. But some were unnerved by tariff brinkmanship and may look to insulate their economies from future trade friction with the U.S.– which means reducing reliance on U.S. commerce.
Manitoba Premier Wab Kinew, for example, told reporters Monday that he wants to “Trump-proof” the province’s economy, according to the Canadian Broadcasting Corporation. This would involve diversifying export markets, including by strengthening trade ties with the European Union and boosting domestic investment in industries like agriculture, mining and technology.
Multiple Democratic lawmakers told Agri-Pulse on Monday that they were skeptical that Trump’s negotiating approach with Canada and Mexico would leave U.S. business better in the long run.
“Sure it might be able to get some of these countries to relent on certain types of concessions,” Sen. Andy Kim, D-N.J., said, “But the question is: Was it worth it, when you look at the big picture in terms of what we might be able to get?”
Senate Finance Committee Ranking Member Ron Wyden, D-Ore., was even more dismissive.
“We don't do logic now,” Wyden said. “We're doing government by whim.”
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