DAVIS, Calif. — The lead article in the latest issue of ARE Update by UC Davis agricultural economists Carter and Dong compares the 2018 and 2019 Market Facilitation Program payments made to California farmers affected by the trade war with estimates of the net impact of the retaliatory tariffs on their agricultural exports. The paper highlights the disparities in payments across different U.S. states, showing that, despite significant losses due to the trade war, California agriculture received a relatively small share of MFP payments (equivalent to about 2% of net farm income) compared to the overall average for U.S. states of 17% of net farm income. Overall, California incurred the largest net economic welfare losses due to the trade war of any U.S. state.
The trade war began when the U.S. government increased import tariffs for major trading partners in 2018. In response to these tariffs, China, the European Union, Canada, Mexico, Turkey, Russia, and India retaliated by imposing new tariffs against U.S. exports, targeting primarily agricultural and food products. While the trade war negatively impacted U.S. agriculture as a whole, California farmers were hit particularly hard by the retaliatory tariffs; tree nuts incurred losses of around $239 million, dairy experienced losses of $130 million, and overall losses in the first year of the trade war were estimated at around $875 million. The authors estimated the reduction in U.S. market share in countries involved in the trade war for agricultural commodities relevant to California. In countries with retaliatory tariffs in place, producers of tree nuts, including almonds, walnuts, and pistachios, saw a reduction of U.S. market share from 79% in 2016/2017 to 65% in 2018/2019. Fresh fruits experienced a market share loss in these countries from 12% to 4%, cotton from 46% to 22%, and dairy from 16% to 8%.
To compensate for some of these losses, the government created the Market Facilitation Program (MFP). The MFP distributed payments to eligible commodities over two years (2018 and 2019), with the second round of payments including a wider range of specialty crops produced in California. In total, payments to California producers amounted to just over $450 million. However, with the exception of rice and cotton, most MFP payments were not sufficient to cover the export losses incurred as a result of the trade war. The greatest losses were experienced by producers of nuts, dairy, and processed fruits and vegetables.
Read the full article by Colin A Carter, Distinguished Professor of Agricultural and Resource Economics at UC Davis, UC Davis Agricultural and Resource Economics PhD student Jiayi Dong, and UC Davis alumnus and assistant professor at University of Connecticut, Sandro Steinbach: “2018 Trade War, Mitigation Payments, and California Agriculture.” ARE Update 24(2): 1–4. UC Giannini Foundation of Agricultural Economics online at https://giannini.ucop.edu/publications/are-update/. For a more in-depth look at their research on the impacts of the trade war, see Carter, C.A., and S. Steinbach. 2020.“The Impact of Retaliatory Tariffs on Agricultural and Food Trade.” National Bureau of Economic Research, w27147.
ARE Update is a bimonthly magazine published by the Giannini Foundation of Agricultural Economics to educate policymakers and agribusiness professionals about new research or analysis of important topics in agricultural and resource economics. Articles are written by Giannini Foundation members, including University of California faculty and Cooperative Extension specialists in agricultural and resource economics, and university graduate students. Learn more about the Giannini Foundation and its publications at https://giannini.ucop.edu/.
Ria DeBiase, Communications Editor, Giannini Foundation for Agricultural Economics, (530) 752-3508, email@example.com.
Colin Carter, Distinguished Professor, Department of Agriculture and Resource Economics, UC Davis, firstname.lastname@example.org.
Rich Sexton, Distinguished Professor, Department of Agriculture and Resource Economics, UC Davis and Editor, ARE Update, Giannini Foundation of Agricultural Economics, email@example.com.