Newly announced tariffs on imports from Canada, Mexico, and China are creating uncertainty for U.S. farmers. These three countries account for more than 40% of total U.S. trade, and any disruption could have a significant impact on costs, exports, and operations. With the spring season approaching, many farmers are watching closely to understand the potential effects and prepare accordingly. The area of impact includes rising costs, financing challenges, supply chain disruptions, and price volatility. Proactively managing these areas can help to reduce the potential impact to your agribusiness. To help clients, prospects, and others, Dermody, Burke & Brown, CPAs, has summarized the key details below.

Understanding the Recent Tariffs

Tariffs impose additional costs on imported goods, often leading to higher prices for businesses and consumers. For U.S. farmers, tariffs can increase input costs, disrupt supply chains, and trigger retaliatory measures from trading partners that reduce export demand. With more than 20% of U.S. farm income coming from exports, any trade restrictions can have lasting effects on profitability. The latest round of tariffs affects major agricultural markets, including China, Canada, Mexico, and the European Union.

• Steel and Aluminum Tariffs — A 25% tariff on all steel and aluminum imports is set to take effect in March, reversing previous exemptions for key allies. These tariffs are expected to increase costs for grain bins, irrigation systems, tractors, and other farm equipment. Foreign officials signaled that they may respond with tariffs on U.S. agricultural machinery, processed foods, and other farm-related exports.

• China — A 10% tariff on all Chinese imports took effect on February 10, 2025, covering electronics, machinery, and other materials used in agricultural equipment. China responded with 15% tariffs on U.S. coal and liquefied natural gas, as well as 10% tariffs on crude oil, agricultural machinery, and vehicles. China is one of the top buyers of U.S. agricultural products, spending $26 billion in 2024. Soybeans remain a key export, but the U.S. lost significant market share during the 2018-2019 tariff dispute when China shifted more of its soybean purchases to Brazil. Much of that market has not returned, illustrating how difficult it can be to rebuild trade relationships after tariffs are imposed.

• Canada and Mexico — The U.S. announced 25% tariffs on all imports from Canada and Mexico, along with a 10% duty on Canadian energy products such as crude oil and natural gas. These measures have been delayed for 30 days as negotiations continue, but both countries have indicated they will retaliate if the tariffs take effect. Mexico is the United States’ largest agricultural trading partner, with Canada close behind. The two countries accounted for $59 billion in U.S. agricultural exports last year, making them critical markets for farmers. Retaliatory tariffs could target key exports like pork, corn, and dairy products, reducing demand and impacting farm income. Canada has already outlined proposed tariffs of 25% on U.S. live poultry, dairy, vegetables, coffee, sugar, and milling industry products, though these measures remain on hold.

Potential Impact on Farmers

• Rising Input Costs — Fertilizers, fuel, and equipment are likely to become more expensive under the new tariffs. The Farm Bureau warned that tariffs on Canadian potash could be “devastating” to U.S. farmers, as more than 80% of the country’s potash supply comes from Canada. A proposed 25% tariff could increase fertilizer costs by as much as $1.70 per acre for corn and $1.42 for soybeans. Additionally, higher prices for steel and aluminum are likely to increase costs for essential equipment.

• Supply Chain Disruptions — Tariffs can create delivery delays as suppliers and manufacturers adjust to new rules and costs. Farmers could experience bottlenecks when sourcing fertilizer, machinery parts, and other materials.

• Market Access — Canada, Mexico, and China collectively represent nearly half of all U.S. agricultural exports. Retaliatory tariffs could reduce demand for key products like pork, corn, and dairy, forcing farmers to find new markets. Both the Farm Bureau and the National Farmers Union have concerns about the potential impact, warning that even the threat of tariffs is already affecting trade. NFU President Rob Larew noted that some suppliers have started adding costs to goods, while others are holding back on sales for delivery beyond certain dates.

• Price Volatility — When export markets shrink, surplus supply often moves into the domestic market, increasing the risk of price fluctuations. This can leave farmers with excess inventory and fewer profitable sales opportunities, making it more difficult to forecast prices and plan for the future.

• Financing Challenges — Trade uncertainty may prompt lenders to tighten credit terms for farm loans. Higher input costs and unstable prices could lead to stricter requirements for operating capital.

• Local Economies — Tariffs are likely to have an impact on the rural economy. When farmers reduce spending on equipment and other supplies, the effects ripple through the businesses that support agriculture. Equipment dealers, grain elevators, and local service providers often see lower demand. Deere & Co., for example, recently reported a 35% drop in quarterly revenue. Trade groups have urged policymakers to consider these long-term consequences when evaluating retaliatory measures.

Steps Farmers Can Take Now

• Review Input Costs: Identify areas where tariffs could increase expenses and explore contract pricing where possible.

• Monitor Policy Developments: Keep track of tariff-related announcements, particularly regarding China, Canada, and Mexico.

• Focus on Efficiency: Look for opportunities to reduce waste and improve productivity.

• Diversify Markets:  If export markets are affected, explore potential sales in less-impacted regions.

• Consult with Advisors: Work with financial professionals to assess potential risks and adjust plans as needed.

Contact Us

Tariffs on key imports and retaliatory measures on agricultural exports are adding new challenges for U.S. farmers. With the right strategies in place, these challenges can become opportunities for long-term success. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Dermody, Burke & Brown, CPAs, can help. For additional information call 315-471-9171 or click here to contact us. We look forward to speaking with you soon.