The Unexpected Side Effects of Trump’s Trade War
Farm income is down, and equipment prices are sky-high.
Several weeks ago, John Boyd’s combine broke down. The machine is an absolute necessity for Boyd—he, like most commodity farmers, uses it to harvest the soybeans, corn, and wheat he grows every year in Baskerville, Virginia. What he really needs is a whole new combine, which would allow him to harvest his crops more efficiently, and which would last him much longer than fixing his current machine or buying a used one. But a new combine would cost him more than $480,000. With his farm income down and equipment prices up, “I haven’t been able to buy anything at all,” Boyd says.
Like farmers around the country, Boyd is in the crosshairs of the trade war, caught between the 25 percent tariffs that the United States has imposed on imported raw materials such as steel and aluminum and the retaliatory tariffs that China and other countries have imposed on major American agricultural exports, especially soybeans. Though the United States and China have been trying to negotiate a new trade deal, a resolution isn’t likely to come until at least April.
The trade war almost couldn’t have come at a worse time for the agricultural industry: Farm debt is on the rise, farm income is in a three-year trough, and the American Farm Bureau Federation’s chief economist said last month that many farmers are dependent on off-farm income to keep their operations running. But farmers can’t push pause on their crops to try to wait out the trade war—they’re at the beck and call of the planting and harvesting seasons.
“Everything’s going up in price, but also the cost of labor is going up,” says Taylor Brooks, a salesperson at Boyd’s local equipment dealer, James River Equipment in Tappahannock. For now, Boyd, the founder and president of the National Black Farmers Association, has decided to spend about $2,600 on parts and fix the combine himself. If he were to pay someone else to do it, he estimates that it would cost him about $8,000.
Some large equipment manufacturers, including John Deere and Caterpillar, announced almost immediately after the tariffs were implemented last summer that they would raise their prices to adjust for the higher price of steel and aluminum imports. It’s not just large manufacturers, though—small, locally based equipment manufacturers have also had to raise prices or look elsewhere for steel. In Montana, a horse-trailer manufacturer was forced to hike prices by about 20 percent last summer because of the tariffs. Bank of America Merrill Lynch downgraded John Deere’s stock in February, citing “a real risk to farm equipment demand” if the trade war continues.
Many farmers are precluded from buying new agricultural equipment because of a combination of higher prices and lower profits. But that puts them in a catch-22. Farmers replace their equipment only every five to seven years. Those who were going to replace it this year and now can’t afford to are forced to repair it instead. And because steel costs are up, so too are the costs of replacement parts.
“When commodities aren’t being sold, farmers don’t have cash,” says Vernon Schmidt, the executive vice president of the Farm Equipment Manufacturers Association. Schmidt works with specialized-equipment manufacturers, not tractor and combine producers. And, he said, the tariffs are affecting the manufacturers he works with in much the same way.
Though there isn’t comprehensive data on how much higher farm-equipment costs are this season, both farmers and equipment dealers around the country told me that tariffs have been driving up prices significantly. That’s borne out by the Federal Reserve’s most recent “Beige Book,” an anecdotal survey of current national economic conditions in each of the Federal Reserve’s 12 districts. In the report, released earlier this month, farmers in the St. Louis district told their local Federal Reserve Bank that they’re seeing “low commodity prices and rising input costs strain farm incomes.” The Reserve also found that manufacturers are still concerned about “higher costs due to tariffs, and ongoing trade policy uncertainty.”
Though in many places the price of steel has steadied and even dropped, farmers are still seeing high prices on equipment that’s already been made. In anticipation of tariffs rising after the latest round of trade negotiations, in January, many manufacturers told the Reserve that they’re importing more materials now. That could mean prices will continue to be passed to consumers even if the trade war ends.
Mark Watney, the president of the North Dakota Farmers Union, told me that at a mid-winter convening of farmers from every county in North Dakota, he heard “just about every farmer in the room” say that they had experienced price hikes of 5 to 10 percent on most farm equipment from their local suppliers. For some large pieces of equipment, such as hopper grain bins, which run about $12,000 a piece, they were told that costs had risen at least 20 percent. Those numbers track with what the owner of a farm-equipment store in Union, Maine, told The Washington Post in September: He’d seen inventory prices go up 20 to 25 percent, an increase he believed was driven primarily by the steel tariffs. Many equipment dealers are simply passing the price of the tariffs on to consumers, farmers who are already in an economic crunch.
The higher equipment costs brought by tariffs are just one part of a global economy that’s not particularly friendly to American agriculture these days. Farmers are being squeezed from all sides: by retaliatory tariffs, by equipment prices, by a stubbornly low agricultural market. Some are still waiting on the Trump administration’s trade aid to come through, though the markets were bad even before the trade war. Although U.S. Department of Agriculture officials were cautiously optimistic at the agency’s Agricultural Outlook Forum last month, they also said that United States soybean exports are down $2 billion because of the trade war, and that the United States risks being “crowded out” of export markets for the foreseeable future.
The United States and China seemed to make some progress in resolving the trade war over the course of the past month. Donald Trump delayed the imposition of further tariffs on China, which would have gone into effect at the beginning of March, and Agriculture Secretary Sonny Perdue said that China has agreed to buy 10 million metric tons more of soybeans. But with negotiations ongoing and a summit not likely to happen until the end of April, the threat of more tariffs is still hanging over the heads of commodity farmers around the country.
For the time being, farmers like Boyd will make do with what they have. Down the road, he, like many other farmers whose wallets are being emptied by a combination of a bad agricultural economy and the trade war, will have to make some tough decisions about whether to keep the family farm. “I have a lifelong body of work here,” he says, but “we’re going to have to make some really hard choices.”