The danger of tying tariffs to NAFTA

President Trump’s new tariffs on steel and aluminum will hurt my farm.

That much was true when Trump signed the documents to impose a 25-percent tax on imported steel and a 10-percent tax on imported aluminum. These tariffs will raise the price of farm machinery and almost certainly spark a trade war that no one can win — especially not farmers like me, who depend on exports for our livelihood.

{mosads}As if the stakes weren’t high enough already, Trump raised them even higher when he linked the new tariffs to NAFTA renegotiations. While Mexico and Canada have been excluded for the time being from the broad tariffs, that exemption is contingent on the signing of a “new and fair NAFTA agreement”.

What’s the solution? Perhaps the president’s actions will encourage other countries to come to the negotiating table and compromise, allowing goods and services to flow across borders with less interference. That’s an ongoing goal for U.S farmers: More access to export markets.

The optimist in me says that we’ll soon see concrete victories. We’ve never had a New York street fighter like Trump on our side. Perhaps he’ll help us make NAFTA and other trade agreements even better.

The realist in me, however, worries about a much different result.

Here in farm country, these tariffs will sting.

That’s not their purpose. Trump hopes to revive the U.S. steel and aluminum industries, which is a worthy goal. Yet, any benefits the tariffs deliver to these sectors will be eclipsed by the unintended consequence of much broader damage to the rest of the economy. 

We hardly need another problem in agriculture. At a time of low commodity prices (I grow corn and soybeans in Iowa) we’re already losing money. Now we’re probably going to lose even more. 

The tariffs will injure farmers in two major ways.

First, they’ll increase the cost of machinery. The tariffs will force manufacturers to pay more for the raw materials that go into tractors, combines and pickups. This means that they’ll have to charge higher prices. Farmers who seek to replace old vehicles with new ones will experience sticker shock — and they’ll either fork over more money than they had budgeted or they’ll skip buying altogether.

As it happens, few of us were going to make big purchases this year, because of the low commodity prices. What would have been a bad year for farm-equipment manufacturers, their workers and the dealers that sell the equipment now will turn even worse. 

Yet even those of us who were planning to put off new purchases will feel pain from the tariffs. To keep our older machinery running, we’re always repairing it — and the cost of spare parts will go up, too.

So there’s no escaping the impact of these tariffs on our bottom line.

Yet, the real harm to agriculture will come another way, as our trading partners retaliate against the United States.

That’s what happens in trade wars. When one side imposes new tariffs, the other side responds with tariffs of its own — often in completely different economic areas.

Consider the case of Chinese tires. President Obama limited their access to the U.S. market in 2009. China hit back with new restrictions on American chicken exports. Early signs suggest that in this new conflict, China may target sorghum, a grain grown in Kansas and elsewhere.

There’s no clear connection between tires and chickens or steel and sorghum, except that the Chinese think that punishing American agriculture will capture the attention of U.S. politicians and persuade them to change their policies.

This latest dispute, however, isn’t mainly about China. The new steel and aluminum tariffs angered a long list of countries, including neighbors and allies like Canada, Mexico, and South Korea. Each one is an important customer of U.S. farm products.

Several have already threatened to retaliate. Their choice of targets will be both economic and political as they devise new trade barriers, probably on the crops and meat that come from the president’s political base in swing states of the American heartland.

Out here in farm country, we’re worried about the tariffs and NAFTA. History shows that nobody wins a trade war. Instead, both sides suffer as they escalate their disputes and block economic cooperation — and the suffering in the United States will hit all of us — but the worst may take place among us farmers.

Bill Horan grows corn, soybeans and other grains with his brother on a family farm based in North Central Iowa. Bill volunteers as a board member for the Global Farmer Network.