Wheeler Report – WI Agriculture – Part I of Series – Exports and Tariffs

WISCONSIN AGRICULTURE – PART I OF SERIES

Wisconsin Agriculture and Exports

Wisconsin is known as American’s Dairyland, but that is not the only agricultural crop Wisconsin excels at producing. In 2016 the USDA said, Wisconsin, “maintained its position as the number one state in American, cheddar and total cheese production, dry whey for human consumption, milk goat inventory, mink pelts produced, corn harvested for silage, snap beans for processing, and cranberry production. Wisconsin cows produced 14 percent of the nation’s milk supply. Wisconsin also ranked second in the number of organic farms.  In 2016, crops conditions were some of the best ever, and Wisconsin set a record corn for grain yield of 178 bushels per acre and a yield of 55 bushels per acre of soybeans.”

According to the Department of Agriculture, Trade and Consumer Protection, Wisconsin’s agricultural industry provides $88.3 billion annually for the state’s economy.  Wisconsin’s agricultural 354,000 jobs make up 10% of the state’s employment. Wisconsin currently has 68,500 farms with 14.3 million acres.  The average farm in Wisconsin is 209 acres in size. In 2017, Wisconsin exported $3.5 billion of agricultural products to 147 different countries.  That puts Wisconsin 12th in the nation for the value of exported agricultural commodities. The three biggest export markets for Wisconsin include Canada, Mexico and China.

The USDA lists for the following Crops for Wisconsin:

  • Apples
  • Beans, dry edible
  • Cabbage
  • Carrots
  • Cherries
  • Corn for Grain
  • Corn for Silage
  • Cranberries
  • Cucumbers
  • Green Peas
  • Hay
  • Maple Syrup
  • Mint for Oil
  • Oats
  • Onions
  • Potatoes
  • Snap Beans
  • Soybeans
  • Strawberries
  • Sweet corn
  • Winter Wheat

And the following Livestock:

  • Beef Cattle
  • Calves
  • Goats
  • Hogs and Pigs
  • Honey
  • Milk Cows
  • Mink
  • Poultry
  • Sheep
  • Trout

Tariffs

A tariff is a tax that is levied on an imported good. There are two types of tariffs; a unit or specific tariff and ad valorem tariffs. A specific tariff is a tax set on a specific item.  For example, the US taxes watches at 51 cents, so for every watch that is imported into the US, the government collects 51 cents.  It does not matter if the watch is a high-end Rolex or a basic Timex worth $20, the tax is 51 cents per item.  An ad valorem tariff is levied as a percentage of the value of the item or commodity imported. (Ad valorem is Latin for “on value.) For example, the US taxes automobiles at 2.5%, so a $50,000 BMW tariff is worth $1250 in tax revenue while a $10,000 Hyundai tariff is worth $250 in tax revenue. There are times when a product is taxed at both a unit tariff and an ad valorem tariff, this is called a two-part tariff. Going back to the example on watches, the watch is taxed at 51 cents specific tariff as well as a 6.25% ad valorem tariff on the case and the strap, and a 5.2% ad valorem tariff on the battery. There is a list (schedule) of tariffs charged on all import commodity categories and is called the Harmonized Tariff Schedule of the United States. The categories are based on the International Harmonized Commodity Coding and Classification System which is established by the World Customs Organization.  The United States has been a participating member of the World Trade Organization since January 1, 1995, and a member of the General Agreement on Tariffs and Trade (GATT) since January 1, 1948. (For more detailed information on the United States Membership you may visit the WTO USA Member page.)

Tariffs are placed on the item at the point of entry into the United States. The tariff is paid by the exporting country or entity.

Tariffs have been a trade policy instrument since the 18th century, and prior to the ratification of the 16th Amendment of the U.S. Constitution in 1913 (created an income tax), the U.S. government raised most of its revenue from tariffs.

In 1988, President Reagan and Canada signed and implemented the Canada-United State Free Trade Agreement which phased out trade restrictions over a ten-year period.  In 1994, Canada, Mexico and the United States implemented the North American Free Trade Agreement (NAFTA). NAFTA superseded the Canada-United States Free Trade Agreement. NAFTA eliminated tariffs on more than one-half of Mexico’s exports to the U.S. and more than one-third of U.S. exports to Mexico. The only part of NAFTA that was done as three separate agreements was agriculture. The U.S.-Canada agreement contained restrictions and tariff quotas on products (mainly sugar, dairy, and poultry products), and the U.S-Mexico agreement contained phase-out periods for tariffs, with all tariffs to be eliminated within 15 years. Additional trade agreements have been negotiated like the Asia-Pacific Economic Cooperation and the Trans-Pacific Partnership.

The Trump administration began implementing new tariff rates in January 2018, and over the past 7 months America has increased tariffs on certain imports and other countries have increased tariffs on American products being imported, called a retaliatory tariff.  The continued increase in tariffs is called a tariff war. Some of the retaliatory tariffs have been levied directly against Wisconsin commodities as a political gesture.

President Trump recently announced he will be making $12 billion available to help farmers affected by the recent tariffs.  The $12 billion will be broken down three ways.  The first is indemnity payments.  Indemnity payments are payments made directly to farmers and there is a maximum amount a farmer may receive. The second are food bank purchases. The federal government will purchase the products from the farmer and make them available to different food banks.  In previous years this was less help to dairy products because they are perishable, but more food pantries now offer refrigeration and can now take dairy products. The third is the federal government helping to create new trade agreements and opening new markets for American products.  India is one of the fastest growing new markets. During his visit to the UK, President Trump worked with the Prime Minister to discuss bilateral trade agreements once Brexit is complete. The Brexit trade agreements could be at least a year out.

Non-Tariff Barriers to Trade

In addition to tariffs, countries may impose other restrictions on imports to their country.  They include:

Licenses

A license in granted to a business by the government and allows that business to sell in the granting country. An example can be a restriction on cheese. A country grants a license to a specific cheese maker which would allow that company to see and act as an importer.

Import Quotas

An import quota restricts the amount of a specific good that can be imported. For example, a country may place a quota volume on the amount of milk it will import.

Voluntary Export Restraints (VER)

A voluntary export restraint is a limit created by an exporting country instead of by the importing country. These are usually done at the request for two countries working together.  For example, Brazil can put a VER on sugar exported to Canada, while Canada agrees to limit the amount of coal it exports to Brazil. This helps to protect both domestic industries.

Local Content Requirement

Some products are not limited by a tariff or a quota, instead they are limited by requiring the product to have a certain amount of the good be made domestically. For example, a restriction may be placed on watches that says 25% of the pieces in the watch must be made domestically, or that 15% of the value of the watch must come from domestically produced components.

Exports Over Time

Wisconsin and American exports have been increasing over time.

Both the United States and Wisconsin have seen growth in vegetable exports since 2000, significant growth started occurring after the after about 2008.

Wisconsin is the 2nd largest dairy producer and exporter in the United States. While Wisconsin has been growing its percentage of the market, and increasing its exports, the past two years have seen a reduction. (This will be explained in another part of the series.)

Over the course of this Wisconsin Agricultural series we will look at different Wisconsin commodities and how different foreign polices and tariffs are affecting Wisconsin producers.