What Impact Will Tariffs Have on Ag Markets and the Broader Economy?

Mon, 02 Dec 2024 17:23:00 GMT

President-elect Trump has threatened to place 25% import tariffs on Mexico and Canada and 10%a additional tariffs on China on day one of his second term.

What will this mean for the agricultural markets?

Jim McCormick with AgMarket.Net says Mexico, Canada and China are the top three export customers of the U.S. and account for 40% of total exports.

Mexico has already threatened retaliation, so another trade fight will be devastating for agricultural markets.

McCormick says during the trade war in 2017-18 prices for agricultural commodities, but especially soybeans, took a tumble due to retaliatory tariffs from China.

He says the agricultural markets have handled the threat well because of the flush of export demand for many ag products that the market is already seeing.

China has been front loading their purchases of U.S. soybeans and Mexico has been buying U.S. corn in anticipation of the tariffs starting after January 20.

Weekly exports on Friday were a marketing year high at 91.5 million bu. and China accounted for 40 million of that total.

Additionally on Friday morning private exporters reported flash soybean sales of 30.9 million bu. to unknown destinations and another 5.6 million bu. to unknown both for 2024-25.

Corn exports were at 41.8 million bu. for the week ending Nov. 21 and 16 million bu. went to Mexico.

Additionally, President-elect Donald Trump’s trade strategy, particularly his proposed tariffs on imports from Mexico, Canada and China, appears to be more of a negotiating tactic than a straightforward economic policy. Analysts interpret this approach as part of Trump’s broader strategy to leverage tariffs as tools for negotiation rather than strictly for trade regulation or economic improvement.

However, if a trade war were to happen McCormick says there could also be negative impacts for the broader economy as prices for all imported goods would rise for consumers.

Additionally, the U.S. imports a large amount of crude oil from Canada and so a 25% tariff could raise gas prices and the U.S. auto industry is reliant on imports of parts and autos from Mexico.

All this could drive inflation back up which is negative for consumers and businessses.

At a time when the FOMC is trying to cut interest rates a return of inflation could force the Fed to change course and maybe even raise interest rates.

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What Impact Will Tariffs Have on Ag Markets and the Broader Economy?