What Does Tariff Volatility Mean for the Agriculture Industry? Recent Updates with China, Mexico, and Canada: What You Need to Know – Maria Phipps, CPA, Auditor
In today’s world, the only thing that seems certain is uncertainty - and the agricultural industry is feeling the pressure. Tariffs are affecting tensions between the United States’ domestic and international trade partners, and input costs seem to be rising daily. As of this June writing, here are the latest developments on how tariffs could impact your business.
Steel & Aluminum: President Trump increased tariff rates on imported steel and aluminum from 25% to 50% as of this writing. This move is expected to increase costs for agricultural machinery, equipment and metal components used in production and packaging.
Canada: Canada currently imposes a 25% tariff on U.S. imports in retaliation to the U.S. 25% tariff on Canadian imports. Additionally, a 10% tariff on energy and potash is in effect against U.S. companies. Generally, potash meets the USMCA (United States-Mexico-Canada Agreement) - compliant goods definition. Exempting potash from the 25% tariff. There does seem to be confusion over the scope of the 10% tariff in the fertilizer world. Simply, potash mined and produced in Canada is USMCA compliant. However, if potash is mixed with nitrogen, phosphate, or other micronutrients it may fall out of compliance becoming subject to the 10% tariff.
Mexico: Under the USMCA, many agriculture goods are exempt from the 25% tariff on Mexican imports, most notably being corn and soybeans. In fact, Mexico was the 2024 top U.S. export market for corn. However, like Canada, energy and potash produce a grey area depending how and where the products are manufactured and processed. The U.S. only produces 7% of total potash consumption meaning there is heavy reliance on Canadian and Mexican imports for U.S. farmers.
The recent aluminum tariff increase will hit Mexican beer imports into the U.S. hard. While the beer itself falls under the USMCA 25% tariff exemption, the aluminum cans for packaging do not – leading to added costs for importers and potentially consumers.
China: The May 12th deal is currently in effect where the U.S. reduced tariffs on Chinese imports from 145% to 30% and Chinese retaliatory tariffs on American imports dropped from 125% to 10%. This agreement is set for 90 days but relations remain tense between President Trump and President Xi. Even though there is relief in the drop from 125% an added 10-20% tariff rate remains on corn and soybean exporters to China. China was the U.S.’s largest soybean export in 2024 and with harvest a few months out, Midwest states will need to plan for larger COGS (Cost of Goods Sold), on financials or decide to pass costs down to the customer.
Looking Ahead:
Increasing equipment and fertilizer costs in conjunction with volatile trade agreements propose many reasons to stay informed of global developments. Watching the markets, and proactively planning how to offset cost increases provides a plan to attack tariff volatility.