Division of Ag analysis: Retaliatory tariffs on ag could mean a $383M economic hit for Arkansas
March 8, 2018
By Mary Hightower
U of A System Division of Agriculture
Fast facts:
- Impact of 25 percent retaliatory tariffs could be $383 million to Arkansas
- Tariffs could cause 14 percent decline in value of oilseeds, grains
(1,070 words)
(newsrooms - With downloadable charts at https://flic.kr/p/23VwrZ1
UPDATED April 11, 2018: impact analysis)
Download Word version _ SUBS 12th graf to correct 'billion' to 'million
FAYETTEVILLE, Ark. – 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 an analysis released Thursday by economists with the University of Arkansas System Division of Agriculture.
Also Thursday, President Trump 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:
Rice
The U.S. 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.
Soybeans
The U.S. is a major exporter of soybeans with China being its biggest market. In 2016, Arkansas ranked No. 11 in share of U.S. soybean sales of nearly $1,592 million, 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.
Corn
The U.S. 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 U.S. 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.
Sorghum
The U.S. 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 U.S. 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.
Methodology
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 U.S. 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.uada.edu.
About the Division of Agriculture
The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system.
The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.
The University of Arkansas System Division of Agriculture offers all its Extension and Research programs and services without regard to race, color, sex, gender identity, sexual orientation, national origin, religion, age, disability, marital or veteran status, genetic information, or any other legally protected status, and is an Affirmative Action/Equal Opportunity Employer.
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Media Contact: Mary Hightower
Dir. of Communication Services
U of A SystemDivision of Agriculture
Cooperative Extension Service
(501) 671-2126
mhightower@uada.edu