Posted on April, 23, 2025 at 08:24 am
The effects of global tariffs imposed and then placed on hold by US President Donald Trump would be wide-ranging across grain-based foods. If the threatened tariffs materialize and retaliatory actions are taken broadly by trading partners of the United States, the direct impact will be significant for segments of the grain, flour milling and baking sectors.
The way the tariffs were announced, effected at high levels but subject to abrupt change because of potential negotiations and then paused for 90 days, exacerbate a policy environment of unpredictability decried by the business community since Trump’s inauguration. This pattern continued late last week when the administration shifted its trade warring focus to China and Mexico, two major importers of US farm products.
While Trump is not the first US president to employ tariff powers granted by Congress, the global duties that were set to take effect are the most sweeping in at least 95 years. To see how what’s happening differs from the norms of the last several decades, a look at a trade action taken during the Reagan years is instructive, offering perspective on both the severity and disruptiveness of imposing across-the board tariffs on dozens of countries.
President Ronald Reagan spoke in April 1987 shortly after the United States placed duties on Japanese products in retaliation for Japan’s failure to enforce a trade agreement with the United States on semiconductors. While defending the action, Reagan used the speech to offer a spirited defense of free trade.
“Imposing such tariffs or trade barriers and restrictions of any kind are steps that I am loath to take,” he said, emphasizing that the action against Japan was meant to address a “particular problem, not start a trade war.”
Agricultural producers have always stood at the front lines of trade wars, facing the threat of retaliatory tariffs and the loss of export customers. The prospect of such developments loom in the current environment. Among the first seven countries on the tariff list President Trump displayed in his White House Rose Garden speech April 3, five were top importers of US wheat. The group included Japan (slated for a 24% tariff), South Korea (25%) and Taiwan (32%), three of the most loyal and consistent customers for US wheat for decades. Other top importers of US wheat — Mexico, China and The Philippines — have also been entangled in the conflict and, combined, the top six destinations for US wheat accounted for 67% of all US wheat exports last year, according to US Department of Agriculture data.
The prospective effects of Trump’s announced tariffs on the flour milling industry vary dramatically by wheat class. At 140 million bus per year, wheat imports are projected by the USDA to account for 14% of wheat food use in the current crop year. Figures are modest for winter wheat, including 1.3% for hard winter, 3.2% for soft red and 6% for white wheat. The reliance of millers on imports, mostly from Canada, is higher for spring wheat, at 29% for hard red spring and a whopping 60% for durum.
Far less severe are the potential effects of retaliatory tariffs on flour exports, a development that potentially would have been catastrophic for milling during most of the 20th century. Exports equated to only 1.1% of flour production last year, and in 2023 the figure was less than 1%. By contrast, the share of flour production accounted for by exports was as high as 32% in the period immediately after World War II, as high as 18% in the 1960s and averaged a meaningful 6.4% from 1970-2000.
Matters also are concerning further down the supply chain. Grains and grain-based foods are among the top sectors ranked by imports, according to the USDA. Grains and grain foods accounted for 19% of food imports by volume in 2024, lagging only fruits (22%) and vegetables (20%) among 12 different sectors tracked. Baked foods and cereals accounted for 72% of grain and grain foods imports, with bulk and milled grains accounting for the balance. The cereal and bakery foods imported were valued by the USDA at $14.2 billion, with nearly two-thirds coming from Canada or Mexico.
Bakery ingredients also factor prominently in the list of imported foods products, led by vegetable oils (12%), sugar and sweeteners (7%) and cocoa and chocolate (2%). Critics of tariffs condemn how such actions arbitrarily create “winners and losers” in business, and that certainly would be the case for bakers.
The differing outcomes may be due to a baker’s chosen product mix that relies on any of a number of imported ingredients such as cocoa, vanilla, oats or yeast. Problems also may be due to a company choosing to operate production plants in Canada or Mexico to supply customers in the United States thanks to the North American Free Trade Agreement and, more recently, the United States-Mexico-Canada Agreement negotiated by the first Trump administration.
Against this disruptive backdrop, it’s worth revisiting the clarity with which President Reagan spoke in 1987 of the false appeal of tariffs. Evoking his own memories of the Great Depression, Reagan called the imposition of tariffs “tempting” to protect American jobs.
While conceding tariffs may prove successful “for a short while,” he said eventually the domestic industry relies on tariffs, stymying competition and innovation. Meanwhile, retaliatory tariffs are inevitable, leading to a cycle of more tariffs and less competition.
“Soon, because of the prices made artificially high by tariffs that subsidize inefficiency and poor management, people stop buying,” he continued. “Then the worst happens: Markets shrink and collapse, businesses and industries shut down and millions of people lose their jobs.
“Over the long run, such trade barriers hurt every American worker and consumer.”
Reagan’s warning reflects sound, widely embraced economic principles, reinforced by the stock market collapse and early signs of business shutdowns in the wake of the tariff announcements. Even in a fraught political environment, grain-based foods’ voice must be heard advocating for free markets, for the importance of the United States protecting its status as a reliable trading partner and for predictable policy actions necessary for businesses to thrive.
Source: World Grain