A trade war between the United States, Canada and Mexico was averted on Feb. 3 as the three countries’ leaders reached agreements to pause any actions for 30 days. The short-term contracts ended the threat that the US would impose tariffs of 25% on imports from Canada and Mexico on Feb. 4, and that those countries would not retaliate.
However, ever since US President Donald Trump was elected in early November, companies and countries across the world have been preparing for a recapitulation of the 2018 trade war enacted by then-President Trump during his firm term. And while “day one” tariffs were not executed, as most expected, tariff-laden rhetoric since the inauguration has been robust.
And after a recent dust-up with Colombia, which refused to accept two military planes full of Colombian nationals that had been detained in the United States as illegal emigrants, President Trump essentially double-downed his tariff threat on the nation, which forced compliance and derailed what would have been the first tariff for the new administration.
Thoughts were this same approach would be applied to the United States’ primary trading partners, two of which share not only borders but also long-established trading policies with the American government. The United States has tremendous leveraging power over both its North American neighbors. According to data from the Council on Foreign Relations, about 78% of Canadian exports and 80% of Mexican exports are received by the United States, while only 14% of US exports are headed to Canada and 15% to Mexico. Still, negotiations ahead of the Trump administration’s Feb. 1 deadline to quell both illegal migrant border crossings and the flow of fentanyl into the United States were not effective at staving off the tariff threat.
“The onus is on Canada and Mexico,” said Brian Harris, executive director and owner, Global Risk Management. “Unless they come to the table quickly with something more than a piece of paper saying they’re going to do better on the border, then the US has all the leverage.”
Economists have been scrutinizing the potential impacts from these and likely future tariffs, especially if retaliatory actions are pursued. It is well known that the 2018 tariffs on China, one of America’s primary agricultural importers both then and now, launched an aggressive trade war between the two nations, which resulted in a steep drop of commodity exports from a multitude of US sectors.
The US soybean market was particularly affected, slashing prices by more than $2 per bus and becoming somewhat of a bellwether for the trade war’s overall impact to US agricultural commodities. US soybean growers had become so reliant on Chinese purchasing that, according to the American Soybean Association president, nearly one out of every three rows of soybeans grown in the United States were destined for China. The total accumulated value loss to US agriculture during this period exceeded $27 billion, with soybeans accounting for 71% of those annualized losses.
But while the front end of the 2018 trade war is significantly highlighted and remembered, the fact that the volume of US soybean exports not only returned to pre-trade war levels but also surpassed them, reaching record highs just two years later and with China still the leading buyer of this commodity, is somewhat overlooked. Also, from 2019 to 2022, the average farm price of soybeans listed by the US Department of Agriculture (USDA) jumped 58%, again surpassing the prior trade war rates.
Most of the turnaround is likely attributed to the phase-one trade deal between the Trump administration and the Chinese government. Signed in early 2020, the deal stipulated that China’s purchasing of US goods and services would return to pre-trade war levels as well as exceed those levels by at least $200 billion over the following two years, with $32 billion allocated specifically to agricultural goods.
According to data from the USDA, 2020-21 US soybean exports surged to an all-time high of 2.265 billion bushels, jumping 35% from the prior year’s 1.683 billion bushels. China’s imports of US soybeans in 2020-21 were 1.256 billion bushels, an increase of 51% from their US soybean imports totaling 831 million bushels in 2019-20 and an astounding 314% higher compared with their 2018-19 imports when the trade war began.
But the rebound was short lived. In the ensuing marketing years, US soybean exports have steadily declined. In the Jan. 10 World Agricultural Supply and Demand Estimates reports, the USDA forecast 2024-25 US soybean exports at 1.825 billion bushels, which was actually up 130 million bushels, or 7.7%, from 2023-24, but was down 198 million bushels, or 9%, from 2022-23, down 333 million bushels, or 15%, from 2021-22, and down 440 million bushels, or 19%, from the all-time high set in 2020-21.
Explanations for the decline include economic pressures related to policies enforced during the COVID 19-pandemic. Also, the phase one deal was enacted at the end of the first Trump administration, but its effectiveness began to wane under the Biden administration. And then there’s Brazil.
Since 2004, soybean exports from Brazil have surged over 430%. In 2013, Brazil surpassed the United States for the first time to become China’s top supplier of soybeans, and it has retained that position ever since. And while total soybean exports from the United States have been drifting lower since 2020, Brazilian soybean exports have mostly been steadily climbing, even during the COVID-19 pandemic period. And with Brazil continuing to expand its soybean production year over year, the country’s export trajectory will likely rise even further, or, at least, plateau and maintain a sharply higher margin compared with other countries.
With US soybean exports sinking back toward levels reminiscent of the first trade war, could a new trade war prove even more detrimental? Or, like the first event, will there be some initial pain that is then followed not only by a resurgence but also a record-seeking climb?
It’s impossible to say whether history will repeat itself. But based on recent episodes, it does seem plausible that, like his first administration, President Trump is leveraging the use of tariffs as a negotiation tactic.
But the current potential trade war is vastly different compared with its predecessor. In 2018, there was only one country being targeted with tariffs, and those tariffs were confined to certain Chinese imports from technological and industrial sectors. The most recent threats have broadened the tariff targets to include nearly all imports — and not just from China, but from Mexico and Canada as well. And while the United States has a lot of leverage, there’s also plenty at stake for ensuring a positive economic outcome for US markets and commodities as consistently promised by the Trump administration.