ABSTRACT.
US farmers have been some of the biggest beneficiaries of US free trade agreements and the postwar creation of a rules-based global trading system. The entry into force of the North American Free Trade Agreement in 1994, the World Trade Organization’s Agreement on Agriculture in 1995, and the enactment of the Freedom to Farm Act in 1996 contributed to a more than doubling of farm incomes over the past decades. Accordingly, farmers have been disadvantaged by the US shift away from forging such trade pacts under recent Democratic and Republican administrations. Furthermore, agriculture is among the US sectors most affected by the volatility and uncertainty created by both the first and second Trump administrations’ embrace of high, often changing, tariffs as the primary focus of its trade policy. Both Trump administrations provided subsidies to compensate farmers for lost export revenue, but this is not a sustainable long-term solution and cannot replace a more positive US trade policy. This policy approach promises at best increased input costs, while raising uncertainty over foreign market access. US trade policy would help the US agricultural sector more by improving trade rules and expanding farmers’ market access abroad.
INTRODUCTION.
The Trump administration has deployed tariffs against imports generally—across all types of goods from nearly all US trading partners, in violation of its international commitments. It has done this without consulting Congress, which has the power to regulate commerce under Article I, Section 8 of the US Constitution. Foreign reactions have been generally muted, given broader geopolitical interests of allies, and retaliation has thus far been limited. Nevertheless, there is continuing trade policy uncertainty, resulting in foreign threats of contingent retaliatory responses— often against US agricultural exports—as well as incentives in major markets abroad to diversify sourcing away from the United States in the interest of derisking and implementation of indirect forms of retaliation as US relations with key trading partners continue to fray.
One large source of trade uncertainty is the frequently changing details of the Trump tariffs—on again, off again, rates raised and lowered, product exclusions, bilateral adjustment deals. Another source is the unclear legality of some of his policies.
In Learning Resources v. Trump, Slip Opinion No. 24–1287 (February 20, 2026), the Supreme Court held that President Donald Trump’s tariffs under the International Emergency Economic Powers Act (IEEPA) were unlawful. The president and his top advisors had already made it clear they would impose tariffs under Section 122 of the Trade Act of 1974 as an interim measure. On May 7, the Court of International Trade ruled in State of Oregon v. United States that the Section 122 tariffs went beyond the president’s authority. The statute deals with “large and serious balance-of-payments deficits” that lead to “fundamental international payments problems.” The government has appealed the court’s decision. Regardless, because Section 122 tariffs are limited to 150 days, the administration is also moving to implement a new round of tariffs under Section 301 of the Trade Act of 1974 and, according to some reports, under Section 232 of the Trade Expansion Act of 1962, in place of the president’s Section 122 and IEEPA tariffs. The threat of restoring broad tariffs to replace the reciprocal tariffs remains current and is expected. This could include tariffs at even higher rates than those imposed on April 2, 2025—which the president dubbed “Liberation Day”—(e.g., an increase in the baseline tariffs from 10 to 15 percent) and beyond amounts agreed in various “framework” agreements (e.g., 10 percent for the United Kingdom). These actions raise the risk of heightened trade tensions and retaliatory tariffs by US trading partners.
These tariffs are not the only current threat to trade. The president threatened to cut off trade with Spain completely after it refused to allow use of its airspace in the current Iran war and has threatened to raise US tariffs on European cars from 15 to 25 percent after critical comments by German Chancellor Friedrich Merz of his lack of a clear strategy in the Iran conflict. As Spain and Germany are members of the European Union, the EU Council of Ministers was expected to discuss potential countermeasures against US trade in response. This threat added to tensions arising from the war, which has resulted in a spike in input costs, particularly with respect to energy and fertilizers. This is on top of the increased costs placed on inputs for agricultural production from the Trump tariffs, first under IEEPA, then under Section 122, and planned under
Sections 301 and 232.
The United States is forging a radically new path on trade and is at risk of turning its back on the lessons of history. Absent agreed rules and enforcement mechanisms in treaties and trade
agreements, governments are free to impose protectionist tariffs and quotas, discriminate against imports, subsidize domestic protection, and engage in an assortment of “beggar thy neighbor” practices. Accordingly, since the Middle Ages, governments have negotiated trade agreements to put their trade on a more stable footing and protect their exporters’ access to foreign markets. In the early 20th century, the United States became a leading proponent of the unconditional most-favored-nation (MFN) principle after being disadvantaged by the United Kingdom’s Imperial Preferences and discriminatory European tariff schedules. The negotiations of the General Agreement on Tariffs and Trade (GATT) in 1947 and the World Trade Organization (WTO) in 1994 sought to address such practices through a set of agreed global rules, including strong rules against discrimination, but the United States has indicated that the age of MFN has passed. Apparently bilateral deals negotiated on the basis of relative leverage would replace existing trade agreements.
Depending on what the president chooses to do in this unsettled situation, the prospect of another wave of punitive US tariffs increases retaliation risks for American exporters, and particularly for US agriculture. With the exception of China and some modest retaliatory tariffs from Canada, the Trump administration has managed to avoid formal retaliation against US agriculture during his second term, although increased Chinese sourcing of soybeans from other sources, principally Brazil, is an active concern. Nevertheless, retaliation remains one of the biggest risks of higher US tariffs. One of the main costs of the Smoot-Hawley Tariff Act of 1930 was the retaliatory tariffs imposed by US trading partners, which particularly targeted US agriculture and contributed to a steep downward spiral in US and global trade. This risk is particularly acute for US agriculture, because the United States is the world’s largest producer and exporter of agricultural products, reflecting our farmers’ unparalleled productivity, the scale and fertility of US farmlands, and adoption by American farmers and ranchers of advanced farming methods, equipment, and technologies.
As a result, farm production and incomes are highly export dependent at a time when the United States faces increasingly stiff competition from other leading farm exporters, including (depending on the commodity) Argentina, Australia, Brazil, Canada, and Europe, and the postwar rules-based global trading system is in disarray. In addition, US agriculture is almost invariably targeted for retaliatory measures whenever trade wars erupt to which the United States is a party. Direct and indirect retaliation for higher US tariffs under the current administration have compounded the challenges already facing US agriculture.
Growth of US exports of bulk commodities like grains, oilseeds, soybeans, and cotton has slowed over the past decade, and did so in 2022. It is true that the United States started running agricultural trade deficits. This is, however, due to price levels of exports (which are largely bulk commodities that have declined over the past few years) and those of imports (which are largely value-added products that have increased with inflation). There is no question that improved market access would help US farmers over the longer run, but it has nothing to do with the agricultural trade deficit. The slowing of export growth is a matter for concern, and reasons for the decline are troubling. These include President Barack Obama’s failure to obtain congressional approval of the Trans-Pacific Partnership (TPP) and the abandonment of US efforts to negotiate free trade agreements (FTAs) or other market access initiatives under President Joseph R. Biden, Jr. Under the current administration, aggressive US trade measures against trading partners, as well as a failure to form closer links to countries that are prime potential growth markets for US agriculture, have led China and other key buyers to shift increasingly from the United States to Australia, Brazil, Canada, and elsewhere. This is both in response to punitive US tariffs and to take advantage of preferential access enjoyed by US competitors under trade agreements like the 12-member Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the 15-member Regional Comprehensive Economic Partnership (RCEP), as well as to hedge their bets against uncertain US policies.
There is an unfortunate combination of concurrent factors that do not bode well for US agriculture: a shift in focus of trade policymakers toward supply chain resilience during the COVID-19 pandemic, followed by more aggressive use of tariffs by Presidents Trump and Biden, as well as the collapse of over a half-century of efforts under the GATT and WTO on multilateral trade liberalization with the failure of the WTO’s Doha Development Round. US agriculture has not gained major new markets abroad in years and is at risk of losing much of what it had through escalating trade tensions.
To read the full working paper as it was originally published by the Peterson Institute for International Economics, click here.
Haunted by tariffs and trade wars: A positive trade policy for US agriculture