If trade partners inflict a 25 percent retaliatory tariff on U.S. soy, rice, corn, and grain sorghum, Arkansas could take a $383 million hit in overall value-added to its economy, according to economists with the University of Arkansas System Division of Agriculture.
President Trump has announced plans to impose import tariffs of 25 percent on steel and 10 percent on aluminum, with exemptions for Canada and Mexico.
“Agriculture in the United States is a potentially likely target for retaliation,” said Eric Wailes, distinguished professor and L.C. Carter endowed chair of Agricultural Economics and Agribusiness for the University of Arkansas System Division of Agriculture. And “Arkansas is a major oilseed and grain exporter to China, Canada, and Mexico among others.”
Wailes, along with department colleagues Alvaro Durand-Morat, assistant professor of agricultural economist; and technical assistant Leah English, prepared an analysis of potential impact on rice, corn, soybeans and sorghum exports should the U.S. implement trade tariffs.
“If the value of Arkansas’ oilseed and grain sectors each fell by 14 percent,” Wailes said. “The result would be an output loss of $243.7 million in the oilseed farming sector and $191 million in the grain farming sector.”
The team said those losses could adversely affect Arkansas employment by around 4,438 jobs, reduce labor income by $261 million and reduce overall value-added to the state economy by $383 million. The reduced crop production values are relative to the 2017 preliminary no-tariff estimates reported by the National Agricultural Statistics Service.
Here is the analysis by commodity:
The United States is fifth-largest exporter of rice in the world and exports an annual average 3.4 million metric tons, or 54 percent of production. Arkansas accounts for about 50 percent of the U.S. rice economy. Mexico, Japan and Canada are the major export markets for U.S. rice. In their analysis, the economists assumed that only Canada, South Korea, Mexico, Turkey, Japan, the European Union and Taiwan would retaliate.
“Both the U.S. long grain and medium grain rice markets stand to lose from the retaliatory measures of the selected importing countries,” Durand-Morat said. “We estimate total U.S. rice production and exports to drop 1.3 percent and 3 percent, respectively, and domestic consumption increases marginally, as a result of the implementation of import tariffs on U.S. rice.”
The total value of U.S. rice production would decrease by $151 million due to a combination of lower producer prices and output. Rice producers’ welfare, measured by the producer surplus, would decrease by $118 million. U.S. consumers would benefit from the trade restrictions through lower prices, increasing their welfare some $66 million.
Exports to Mexico and Canada would decrease significantly, but the impact would be much smaller in Japan because it already imposes high restrictions on rice imports. Other customers such as Haiti and Colombia would also benefit from the decrease in U.S. rice prices and expand their imports, which partially offsets the decrease in trade with the countries imposing the retaliatory import tariff on U.S. rice.
The United States is a major exporter of soybeans with China being its biggest market. In 2016, Arkansas ranked eleventh in share of U.S. soybean sales of nearly $1,592 billion, 3.8 percent of total U.S. soybean receipts. A 25 percent tariff would result in a 14 percent loss of value and a 19 percent decline in export volume. Between 2015 and 2017, the average volume of U.S. net soybean exports is 55.7 million metric tons or 49 percent of domestic production.
The United States is also a major exporter of corn, with the largest markets being Mexico, Japan, Colombia and South Korea. Arkansas ranks 19th among states in corn production. The average volume of corn exports from the United States for 2015-2017 is 52.9 million metric tons or 14 percent of domestic production. A 25 percent tariff would mean a 14 percent decline in value and a 44 percent loss in exports.
The United States is the major exporter of sorghum with most of the shipments sold to China. The average volume of U.S. sorghum exports for the 2015-17 period is 7.12 million metric tons or 58 percent of domestic production. Among the states, Arkansas ranked ninth in value of sorghum production in 2016 at $17 million. Using a similar model as for soybeans and corn, U.S. sorghum prices would decline by 18 percent, while volume of exports would fall 12 percent.
The soybean, corn and sorghum analysis aggregates all importers and all other exporters into a rest-of-world, or ROW, region and assumes a uniform tariff on all U.S. exports. A net trade, partial equilibrium model with the United States as the net exporter and the ROW as the net importer solves for a new equilibrium price and U.S. export level relative to the averages of the 2015 to 2017 marketing years. The rice analysis is more detailed, based on detailed global models maintained by the Division of Agriculture. It allows for differential trade responses depending on likely and unlikely U.S. rice export flows that would face a tariff backlash from countries who export steel to the U.S. state impact estimates use the IMPLAN model, but these estimates are approximate since the input-output relationships for grains and oilseeds are not highly disaggregated.
For more information about agricultural economics, visit www.uaex.edu.
University of Arkansas System Division of Agriculture