South America Won the U.S.-China Trade War

Two economists calculate that U.S. farms lost $14 billion because of retaliatory tariffs, while South American countries boosted their exports by $13 billion to fill the gap.

The easiest way to win a trade war? Don't be one of the countries involved.

When the United States slapped tariffs on steel, aluminum, and billions of dollars of Chinese imports in the summer of 2018, China and other U.S. trading partners retaliated by targeting American agricultural exports. By the time a series of tit for tat increases in tariffs by the U.S. and China came to a halt with a December 2019 partial trade agreement—one that left most of the higher tariffs in place on both sides—the average foreign tariff for American farm goods had jumped from 8.3 to 26.8 percent, according to a new paper from Colin A. Carter and Sandro Steinbach, economists at the University of California and the University of Connecticut, respectively.

As a result, U.S. farm exports suffered. Carter and Steinbach calculate that U.S. farmers lost more than $15.6 billion in trade with countries that hiked tariffs in response to the Trump administration's trade war. Soybeans, pork products, and grains were the products most affected.

Some of those losses were offset by trade with other nations—for example, when China stopped purchasing U.S.-grown soybeans, growers had to find other buyers for their products. That was the goal of a July 2018 deal struck by President Donald Trump and European Commission President Jean-Claude Juncker that the White House touted as a vehicle for sending more American soybeans to Europe.

As Reason noted at the time, Europe's annual consumption of soybeans was less than 25 percent of China's (and it already had access to tariff-free imports of U.S. soybeans), so "unless Juncker and Trump plan to start jamming soybeans down European throats, foie gras-style, there's simply no way that Europe can consume enough soybeans to make up for the loss of China as an American export market."

In short: deflected trade to other countries could make up for only some of the losses caused by the trade war.

Nearly two years later, Carter and Steinbach calculate that so-called "deflected trade" in agricultural goods boosted U.S. exports by about $1.2 billion during the trade war—leaving American farms only $14 billion in the red.

The trade war may not have turned out to be "good and easy to win" for the United States, but some other countries have benefited from how higher tariffs have warped the global flow of agricultural goods. Argentina, Brazil, and Chile were the "primary beneficiaries of the retaliatory tariff increases," Carter and Steinbach write, because they "were able to substantially expand their trade with retaliatory countries at the cost of the United States."

In all, countries that the two researchers identify as "non-retaliatory countries"—that is, places that did not hike tariffs in response to U.S. tariffs on steel, aluminum, and other goods—gained more than $13.5 billion by increasing trade to places, like China, that took steps to reduce imports of U.S. farm goods.

Again, that seems to confirm some anecdotal reporting from the height of the trade war. As Brazilian exporters swooped in to fill China's demand for soybeans in the second half of 2018, for example, Brazil actually exported so many soybeans that it had to import some from America to meet domestic demand. Beyond the initial losses, soybean farmers are worried about how the trade war might permanently reshape the global soybean trade, to the detriment of American growers.

It should be clear by now that the trade war is an economic disaster for American farmers. But the economic costs associated with retaliatory tariffs should also be a reminder that the people who launched the trade war had no idea what they were doing.

In March 2018, after Trump announced his intention to hike tariffs on steel and aluminum, Peter Navarro, the director of the White House's National Trade Council, was asked about the potential consequences of retaliation aimed at American farm exports.

"I don't believe any country in the world is going to retaliate," he said. "They know they're cheating us, and we're just trying to stand up for ourselves."

Navarro and Trump were wrong. American farmers have lost $14 billion because of their mistake.