Category: Cooperative Extension
Tariffs in the Spotlight: History, Impact, and Agricultural Ripples
February 21, 2025 Written by: Kofi Britwum – Assistant Professor of Farm Management (britwum@udel.edu)
Tariffs are making news headlines again! Some are already in place for goods entering the United States from countries such as China, while others will soon take effect. This latest wave has unsurprisingly sparked considerable political and public debate, partly because they are being used as leverage to advance non-trade objectives in some instances and partly due to their targeting key allies and neighbors. Even though the current administration may appear to favor tariffs as a preferred tool for addressing economic imbalances and safeguarding national interests, their use in the US is hardly unprecedented. Tariffs are taxes levied on imported goods and can be likened to a tollbooth where foreign goods are subjected to a specific charge. In theory, they are imposed to generate revenue, to protect domestic industries, and as witnessed lately, as a tool to achieve political, national, or social objectives.
Looking back
The history of tariffs in the United States dates as far back as 1789 when the first tariff law subjected most imported goods to a 5% tax. This was intended to fund the government and to help offset national debts following nearly a decade of the Revolutionary War that burdened the young nation. The law established an ad valorem tariff, which is a tax based on a percentage of the value of imported goods. Tariffs generally fall into two main categories: ad valorem tariff is percentage-based, while a specific tariff is a fixed dollar amount per unit of imported goods. The 1789 tariffs, for example, also included a specific tax on targeted goods, such as a 10-cent tax on a gallon of wine. Over the course of the 19th century, there were several instances of tariffs which were generally intended to protect key industries such as sugar, steel, iron, and wool.
Tariffs remained a key policy tool in the 20th century as well; the Smoot-Hawley tariff was a notable one signed into law by President Hoover to protect agriculture and US manufacturing businesses from foreign competition. These tariffs, which were anywhere between 40% to 60% on many imported goods, incited a retaliatory response from over two dozen nations that erected trade barriers on American goods. This contributed to a sharp decline in global trade and coincided with the Great Depression in the US. While economists do not widely believe the Smoot-Hawley tariffs per se caused the Great Depression, it certainly did not help, given the prevailing economic conditions at that time. Other administrations, such as President Johnson’s, imposed limited tariffs on trade partners in the mid-1960s. However, after nearly two centuries of tariffs, the 1980s marked a shift toward an era of free trade in the US. In recent years though, growing trade deficits (particularly with China), a diminished industrial base, and a decline in wages have reignited debates about the merits of free trade.
With tariffs being back on the table, proponents believe it has its benefits, even if they also come at a cost. Whether the benefits outweigh the costs at any given time is one for debate. In theory, the obvious winners are the industries that are shielded from foreign competition. However, this should be viewed from a more nuanced angle, that is, insofar as other countries do not retaliate with counter-tariffs and whether supply chains are not disrupted. Consumers tend to bear the brunt via higher prices of the imported products affected, i.e., if businesses decide to pass the costs downstream. Industries in the middle supply chain that use imported materials may also face higher production costs. Where retaliatory tariffs are imposed, US exporters in the affected industries are impacted too.
Recent tariffs
This latest round of tariffs imposes a 10% tax on all Chinese goods entering the US, while proposed tariffs on Canada and Mexico remain on pause. Additionally, tariffs on imported steel and aluminum are on the table, raising concerns about their potential economic consequences. While it remains to be seen how this new round of tariffs reverberates across the economy, previous tariffs in 2018 on China may offer insights into potential ramifications. Then as now, China retaliated with counter-tariffs, which stymied the US soybean export market and expanded China’s soybean trade with Latin American countries such as Brazil. This generated considerable uncertainty for American farmers and rippled through other agricultural industries as well, impacting revenues for farm machinery industries due to reduced farmer demand.
China on US tariffs
China has recently countered US tariffs with duties on selected American goods such as liquefied natural gas, coal, and agricultural machinery. While these are not expected to impact farm businesses substantially, they could hurt the affected industries. Additionally, although the proposed tariffs on steel and aluminum may not immediately affect farmers, they could also lead to higher costs for agricultural equipment over time. Beyond agriculture, this will likely impact other sectors reliant on steel and aluminum as inputs, such as the automotive, construction, and manufacturing industries. The extent of these effects will depend on whether these trade barriers trigger increased domestic investments and production or simply drive prices higher across key sectors. However this unfolds, the hope is that its impacts are not drastic. Yet, given how interconnected global trade has become, it remains to be seen how it all unravels.