Tariffs are often implemented as a means to encourage domestic manufacturing and purchasing by making imported goods more expensive. The Trump administration, for instance, has imposed tariffs with the goal of reducing reliance on foreign manufacturing. 

However, for American farmers, tariffs can have a compounding negative effect, increasing costs for necessary inputs and leading to retaliatory tariffs that reduce export demand. To discuss the good and the bad of tariffs, Chief Economist for Farmer Mac, Jackson Takach, recently appeared on the National Land Podcast and shared his thoughts on where the ag industry may be headed later this year.

Here’s what to know about tariffs and their impact on ag land values!

The Double Burden on Farmers

Farmers face higher costs when tariffs are placed on critical agricultural inputs such as fertilizers, pesticides, and fuel. A significant example is potash, a key component in fertilizer, which is largely imported from Canada. If tariffs are imposed on Canadian potash, American farmers will face higher production costs. Additionally, Canada is a major importer of American barley, so tariffs with Canada could also lead to decreased demand and lower prices for barley farmers.

The other side of the coin for farmers is export taxes placed on crops via retaliatory tariffs from other countries. These tariffs mean ag producers in the US have an even smaller profit margin when combined with higher input costs. Maintaining healthy international trade relationships is paramount for protecting farmers in the US and ensuring that they’re able to remain profitable. 

Speaking to the impact of tariffs on farmers, Takach stated, “About 20% of all our farm income is derived from foreign markets. We make way more food in this country than we can consume, and so we desperately need these foreign markets to push our food out into the world and keep prices strong. So when we start talking about trade, the ag industry bears a bit more exposure than other industries.”

The 2018 Tariffs and Their Effects

When speaking about the ways that current tariffs may impact the ag industry, it may be helpful to examine the ways that the 2016 Trump administration’s trade war with China impacted US ag producers.

The tariffs imposed by the Trump administration in 2018 primarily targeted China but also led to retaliatory tariffs from six trading partners. These retaliatory measures affected U.S. agricultural and food exports, resulting in approximately $27 billion in losses from mid-2018 to 2019. Midwest states such as Iowa, Illinois, and Kansas were among the hardest hit.

Soybeans, one of America’s top agricultural exports, bore the brunt of these tariffs. With China as the largest importer of U.S. soybeans, the decline in exports forced the Trump administration to roll out $12 billion in assistance programs to aid struggling farmers. 

While U.S. agricultural exports to China rebounded somewhat by 2020, they remained below pre-tariff levels, illustrating how tariffs can have lasting negative effects on trade relationships and market stability.

Potential Impacts on Land Values

Two of the biggest factors influencing farmland values are input costs and commodity prices. When tariffs increase the cost of farming and reduce profitability, the value of farmland could decline over time. Although it may take months for the land market to fully reflect these changes, prolonged trade instability and shrinking profit margins could lead to decreased land values.

Speaking to the implementation of these tariffs, Takach still expressed some concern for the ag industry, stating, “I think April is going to reveal a lot of the cards people are holding. It could be a bit of a showdown, like a staring contest between us and our three biggest ag partners (China, Mexico, and Canada). That’s what makes me nervous. While we are doing these tariffs to help our other industries, like steel, ag becomes the easiest dog to kick for these other trading partners, and we’ll see it in commodity prices.” 

That being said, Takach remained fairly optimistic in terms of US farmland values, speaking to the stability seen in the market over the past few years. According to Takach, sellers may not see the kinds of premium prices observed in Midwest farmland over the past few years, but they won’t be selling at a discount either. He’s currently observed lateral movement in land prices but not upward or downward, reinforcing the idea of relatively stable land prices in the ag industry.

With the uncertainty surrounding the implementation of future tariffs, farmers and landowners should stay informed about potential economic impacts. Consulting with a land expert can provide valuable insights into market trends and help develop strategies to navigate these challenges.

If you have concerns about how tariffs could impact your farmland, now is the time to reach out to a Land Professional to assess your position and prepare for any potential market shifts.