The Real-World Consequences of Tariffs

With the ever-increasing popularity of tariffs among the people and leadership of the United States, it is important to take a close look at the real-world devastating consequences of broad, sweeping tariffs without a strategic purpose.

A Personal Connection

When I checked the cost of treating soybean seed this year, the local farm supply business told me “$25 a bag” (approximately 50 lbs.). This seemed high, so I sought a better, cheaper alternative. Online I found a domestically sold basic treater costs $50,000. The cost of a seed treater with a computer control to ensure precision treatment was $63,000! I was bummed, “I guess that’s why it costs $25 a bag to treat it,” I grumbled. Then I saw an ad for a seed treater on Made in China. I emailed the company and received a quote of $7,800 for their seed treater. With needed options added (computer control, extra biologicals bucket, storage cabinet, and top hopper) plus shipping, the total Pre-Trump tariff cost would be $12,810. Finally, something I can afford! I then asked about the Trump tariff. They were reluctant to say because they didn’t know what Trump would do between now and the short time the machine was shipped. I don’t blame them; in the last month I have heard anywhere from 10% to 60%. Talking with a customs broker, I found that the cumulative tariffs equal 45% (25% from 2018 and 20% now) or $5,764.50 extra for a total of $18,574.50. These tariffs on the treater mean that the U.S. Government will profit more on the machine than the company that built it! The additional cost of the tariffs also means that it will take me an extra year to pay for the treater, and consequently, I will have less money to invest in other areas of my business resulting in less economic activity. While this one instance is small, this reduction in economic activity is repeated millions of times nationwide, resulting in trillions of dollars less in economic activity. The result is fewer jobs, products, goods, and services for everyone in the country.

Two Scenarios Where Tariffs Make Sense

Scenario One: A tariff is implemented to preserve production of items critical to national security. Few nations can compete with the United States’ agricultural production. However, virtually every country feels it is important to have the ability to feed themselves at least a basic diet in the event of a disruption of the supply chain. Traditionally, while the United States has not been happy about tariffs placed on our agricultural commodities, we have understood that all countries need to protect their own ability to feed themselves. The United States has, in kind, placed tariffs on imported products vital to our own self-interests, such as steel. These types of tariffs tend to be as minimal as possible because nations want to protect their industry but not eliminate competition vital to innovation.

Scenario Two: A tariff can promote fair trade and compliance with international law. For instance, companies spend money developing proprietary products. Foreign companies copy these products and sell them cheaper than the original developer because they do not have overhead from developing these products. In response, countries place a tariff on all products not in compliance with international law.

Trump Tariff Approach In contrast to the scenarios where tariffs make sense, Trump's approach to tariffs is to place tariffs on everything coming from every nation. This causes other nations to retaliate with tariffs of their own. Because this topic is too large to look at everything, we will look at its effect on agriculture, an industry more reliant on trade than most.

On the whole, other countries can produce the raw inputs for agriculture (fertilizer, tractors, planters, crop protection products, seed, etc.) more cheaply than the United States can. Thus most inputs are purchased from other countries. On the flip side, few nations can compete with the United States in agricultural outputs in terms of volume, quality, or production cost. Consequently, as a nation we buy our agricultural inputs and sell our agricultural outputs. The problem with declaring a tariff trade war on every nation is that the United States has or will place a 25% tariff on inputs from every country; therefore, it will cost approximately 25% more to purchase inputs. Some may be thinking “What about domestic producers of agricultural inputs? They will keep the price down! After all, Donald Trump just wants to promote well-paying United States industry!” The answer to that is no! They will not keep prices down. The rule of business/capitalism is make as much money as you can. If your foreign competitor’s raw inputs cost 25% more, you must charge 24% more to ensure that you not only get all the business you can handle but also maximize your profits.

Now let's look at Canada, a country which has placed a 25% retaliatory tariff on the United States. This increases the price of U.S. grain for Canadian consumers. As a result, Canadian consumers choose to import their grains from another country such as Brazil. Transporting grain from Brazil may cost consumers an additional 5%, but that is still far cheaper than paying an additional 25% tariff to the Canadian government for grain produced in the United States. Consequently, if the United States wishes to sell their grain to Canada, they will have to drop the price by at least 20% to compete with the cheaper Brazilian grain. They may have to drop the price further as there are hard feelings to overcome.

In a nutshell, United States production costs will increase by approximately 25% and revenue will decrease by at least 20% and that is an unsustainable loss. This will result in a 45% downturn in revenue or potential profit, but United States grain producers never had a 45% profit margin to begin with. In fact, even before the trade war, the average corn farmer in 2024 lost $100-$125 per acre of corn raised, and other crops were proportionally similar. This is a somewhat normal business cycle. Projected sustained losses year after year of $300 to $400 per acre caused by a trade war are not. Losses of this magnitude, if they come to pass, have not been seen in constant dollars since the Great Depression when these losses caused the collapse of agriculture and the consequent widespread famine among the United States population. In fact, one fourth of draftees for World War II were rejected due to malnutrition brought about by the collapse of our agriculture.

Regardless of how people feel about some policies, FDR and the Democrats had during the Great Depression era, the general consensus that the government under their leadership did everything they could to bring food and other necessities to people. By contrast, today’s leadership has shown little concern for the consequences of reckless tariffs. Without a strategic purpose, these broad tariffs will continue to harm businesses, farmers, and the entire U.S. economy.

Mark Peck is a crop and dairy farmer in Chippewa Falls and is currently taking a class in international politics.

BE OUR

G UEST

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MARK P ECK CROP & DAIRY FARMER/INTERNATIONAL POLITICS STUDENT