Tariffs enacted under the Trump administration could have significant impacts on the agriculture industry in the U.S. and particularly on the dairy industry in Wisconsin, according to University of Wisconsin associate professor of agriculture and economics Chuck Nicholson.
“The tariffs have a number of different impacts, whether that be the tariffs we are placing on imports from other countries or the tariffs that other countries will place on us,” Nicholson said.
As exporting from the U.S. becomes increasingly costly, foreign countries are likely to find different exporters, Nicholson said. Countries like Canada and Mexico have placed retaliatory tariffs of over 25% on U.S. imports. China has placed retaliatory tariffs over 100% in response to the Trump administration’s actions.
The U.S. exports around 20% of milk fat and milk fat products, and retaliatory tariffs will have a substantive impact on the ability to sell products into those marketplaces, Nicholson said.
“Because Wisconsin particularly is a major cheese and dry whey producer, there is potential for there to be a little more of an impact within the state than within the nation,” Nicholson said.
Nicholson added that for dairy farms and dairy processing businesses in the U.S., retaliatory tariffs may mean increasing the cost of equipment, making it difficult for plants to expand and open.
In response to losing foreign buyers, the dairy industry will have to reduce domestic prices of goods to increase consumption within the U.S., according to UW Dairy Markets and Policy Outreach Specialist Leonard Polzin.
On the consumer side, the price of milk may be reduced by around 20 cents, and a possible 50-cent decrease in the prices of cheese. But Polzin argued the benefit for the consumer doesn’t necessarily outweigh the cost for the producer.
“When an individual consumer goes to check out at the grocery store, they might be able to save 60 or 70 cents,” Polzin said. “I wouldn’t say from a policy perspective that that’s a positive economic effect when you take into account the entire supply chain affected by this.”
Wisconsin currently exports approximately $8 billion in agricultural products — which is projected to decrease by $3 billion because of the impact of the tariffs. Though domestic prices have already dropped slightly, the agriculture industry is yet to see a fundamental change in production and consumption, but change is expected, Polzin said.
In the short term, U.S. exports may increase as international buyers make their purchases before permanent tariffs are set in place or before tariffs increase.
But, in the long term, the amount of product the agriculture industry is exporting is expected to drop, and domestic inventory will increase — meaning milk prices are expected to decrease by around 9%, Polzin said.
Polzin compared this situation to increased immediate consumption of products during the COVID-19 pandemic, when buyers bought in bulk to prepare themselves for shortages. He said the Trump administration may deceive the public by making it seem as though the tariffs led to increased exports, when that may only be a short term effect.
Many farmers are worried about the uncertainty of tariff impacts and international trading policy, Nicholson said.
“They [farmers] want to know what the best policy is in this situation, and if the policy is being jerked around quite a bit it’s really difficult and tends to create a paralysis of decision making,” Nicholson said. “People don’t commit to doing anything because they’re not sure how it’s going to work out for them.”
Farming companies may be afraid to commit to contracts, buy equipment or complete an ongoing plant expansion because of uncertainty of tariff policy, according to Nicholson.
The impacts of tariffs on other agricultural products will indirectly affect the dairy industry as well, Nicholson said. The U.S. exports half of its soybeans to China, but now it will be twice as expensive to export, and the domestic soybean market will likely respond by decreasing prices within the U.S., making soybeans — used as feed for cattle — cheaper.
“I wouldn’t call this [cheaper soybeans] a bright spot to the situation, but it could have the effect of lessening the pain a little bit because it does lower one of the key costs for dairy farms,” Nicholson said.
If the tariffs are paused or permanently ended, the effects will not end immediately, Nicholson said. As countries find different producers, the U.S. may not be able to recover the consumers it had before the tariffs.
Within the U.S., the Trump administration is considering cutting food income support programs such as the Supplemental Nutrition Assistance Program, according to Nicholson. SNAP and other food assistance programs use a considerable amount of dairy, and the elimination of the programs would reduce domestic consumption.
“The tariffs will cut the demand for our products outside the U.S., but the cutting demand on the inside or within the U.S. doesn’t help either,” Nicholson said.
The Trump administration is considering making payment programs to farmers available to offset the damage caused by tariffs, but this wouldn’t eliminate the harm caused altogether, Nicholson said.