Dairy Economist Models The Pros & Cons Of Tariffs

It’s well-known that the Trump administration plans on more tariffs, or taxes on imported goods, as a negotiation tool with other countries. The challenge to U.S. agriculture is what happens if and when other countries respond with tariffs of their own.

Chuck Nicholson, an associate professor in agricultural economics and dairy science at the University of Wisconsin, talks about whether there are benefits to using tariffs in trade policy.

“There can be some benefits, to the U.S. populations, of having those tariffs in place, but most of those are not the kind of benefits that are going to accrue to folks working in agricultural supply chains, from the input suppliers on through the retail stores,” he explains.

But the cost of tariffs and retaliation to U.S. agriculture and, more specifically, the dairy industry will be a high one, Nicholson says.

“Our three major export destinations for dairy products are Mexico, Canada, and China. So, if we were to do some things with our trade policy towards those three countries, and they do some things back to us with trade policy, then that can be rather detrimental to our possibilities of selling into those export markets,” he says. “To underscore the importance of those, about 40 percent of all of the dairy product exports by value goes to those three markets. So, those are vitally important for not just now and in the short term, but for our future growth opportunities.”

Nicholson explains while dairy is a small part of U.S. agricultural and total exports, those export opportunities are vital for U.S. dairy to succeed. His models show a significant loss for dairy if U.S. tariffs spark retaliation.

“On the tariff issues, specifically… if we impose tariffs on those countries and they retaliated against us, we’re looking at a fairly significant nationwide reduction in the net farm income – that is the profits that farms earn on dairy – that looks like about two and a half billion dollars or about eight percent reduction so that’d be like getting an eight percent cut in your paycheck,” he says.