U.S. Trade Policy Shifts: Potential Implications for Agricultural Exports

Dongin Kim, Sandro Steinbach, and Carlos Zurita

This research estimates the impact of retaliatory tariffs, imposed in response to changes in U.S. trade policy, on U.S. agricultural exports in 2025 within a general equilibrium framework.

On April 3, 2025, the current U.S. administration announced it would impose “reciprocal” tariffs on all trading partners. Under this new trade policy, exporters around the world wanting to access the U.S. market would face an additional tariff of at least 10%. Some countries, however, would be subject to even higher rates. Among major exporters, for example, Chinese goods would face a 34% tariff, Cambodian goods 49%, and Vietnamese goods 46%. A full list of tariff increases is available in Annex 1 of the White House’s executive order.

The Office of the United States Trade Representative has also released the formula used to calculate these tariff increases. A closer look shows that each country’s tariff is proportional to the size of the U.S. trade deficit with that country. While some partners, like the United Kingdom, have not announced retaliatory tariffs on U.S. goods, others have. China, for instance, has introduced a 34% retaliatory tariff on all American goods entering the country. Given the scale of U.S. agricultural exports to China, this measure could have significant effects on U.S. agricultural export volumes and overall economic welfare. According to the U.S. Department of Agriculture, “China was the largest market for U.S. agricultural exports in 2023, comprising 17 percent of the total.”

In light of this new trade environment, the Center for Agricultural Policy and Trade Studies (CAPTS) at North Dakota State University is conducting research to estimate the effects of retaliatory tariffs on U.S. agricultural and food exports. The study, led by Dongin Kim, Sandro Steinbach, and Carlos Zurita, offers preliminary estimates of how U.S. exports may shift in response to tariff increases by key trading partners. While still a work in progress, early results were presented by Dr. Zurita during an academic seminar hosted by the Ness School of Management and Economics at South Dakota State University (SDSU) on February 24, with faculty and graduate students in attendance. The following month, a second presentation was held as an extension seminar—also organized by South Dakota State University—directed to South Dakota farmers, ranchers, and business leaders.

Using newly available trade data from the U.S. International Trade Commission, this research measures changes in U.S. agricultural exports under two trade policy scenarios.

In the first scenario, we assume that the U.S. carries out tariff increases targeting only Canada and Mexico with 25% tariff increases each and China with a 10% tariff increase. This was the initial approach proposed by the current administration in February 2025. Preliminary results, shown in Table 1, suggest that retaliation may not be the best response for any of the targeted countries. Without retaliation, Mexico would see little or no impact on its agricultural exports to the U.S., while China could face a reduction of up to 40% in its exports to the U.S. If retaliation occurs, Mexico’s agricultural exports to the U.S. would fall by 17%, and China’s by 45%. The U.S. would also be affected, but to a lesser degree. Without retaliation, U.S. agricultural exports could fall by 4% (roughly $3 billion in 2019); with retaliation, the decline could reach 7% (about $5.3 billion in 2019).

Table 1. Higher Tariffs for China, Canada, and Mexico

Note. This table presents the estimated effects of a 10% U.S. import tariff increase on all Chinese agricultural goods and a 25% increase on agricultural imports from Canada and Mexico. In Panel A, no country retaliates. In Panel B, China, Canada, and Mexico respond in a tit-for-tat manner. Changes are calculated using a general equilibrium analysis on exports in 2019 as a baseline.

In the second scenario, we assume the U.S. adopts a reciprocal tariff approach. Here, the U.S. applies the same import tariff that each trading partner imposes on U.S. exports of the same product. We assume no retaliation since matching tariff rates leave little room for partners to justify or implement further increases. The results for this scenario are presented in Table 2.If this policy had been used instead of one based on trade deficits, the largest U.S. import tariff increases would target China, Mexico, Brazil, and India. The results for this scenario are shown in Table 2. We estimate U.S. agricultural export losses at approximately 2%. Most trading partners would see little change in their exports, with the possible exception of India, whose agricultural exports could fall by 1%.

Table 1. Reciprocal Tariffs

Note. This table presents the estimated effects of the U.S. implementing “reciprocal” tariffs, meaning it matches the import tariff that each trading partner imposes on the same product. We compare results for exports from China, Mexico, Brazil, and India, the countries that experienced the largest tariff increases to achieve reciprocity. Changes are calculated using a general equilibrium analysis on exports in 2019 as a baseline

One key takeaway from our results is that retaliation may not serve U.S. trading partners well. Although the U.S. could suffer short-term losses in agricultural exports, the negative effects on its partners would likely be greater. This point was highlighted in both recent presentations at South Dakota State University.

Dr. Zurita also noted that the thinking behind this kind of tariff increase is not new. Between 2018 and 2020, the U.S. and China engaged in a trade war, each side responding with new tariffs. In 2024, the previous president—belonging to the party now in opposition—imposed additional tariffs on Chinese exports like batteries, electric vehicles, and steel and aluminum products. Current discussions on tariffs also echo themes from the 1992 presidential debate between George H. W. Bush, Bill Clinton, and Ross Perot. Perot, in particular, warned that the new North American Free Trade Agreement (NAFTA) could lead to job losses in U.S. manufacturing as companies relocate production to Mexico to take advantage of lower labor costs.

This research will continue to be revised as new data becomes available and as U.S. tariff policies evolve—such as the recently proposed approach based on trade deficits. It is also important to note that the effects measured in this analysis are short-term. Over time, trade policies may lead to trade creation or diversion, as the U.S. and its trading partners shift exports to new or previously underused or unexplored markets. These preliminary results, however, are relevant for policymakers interested in mitigating possible negative results from the proposed trade policies.