Specific Objectives of the Project:
The Trump administration initiated a trade war in 2018 that triggered several countries, including Canada, China, and Mexico, to retaliate against the United States. These countries implemented waves of retaliatory tariffs that disproportionately impacted California agriculture. Canada and Mexico revoked their retaliatory tariffs in May 2019 as part of the USCMA negotiations. China then started to reduce retaliatory tariffs for selected agricultural products in response to the Phase One Deal signed in early 2020. While these tariff reversals reduced trade tensions between the United States and its trading partners, the effects of the trade war are still lingering. Using product-level trade data for the United States, China, Canada, and Mexico, our study aims to measure the degree of trade recovery after the retaliatory tariffs were fully or partially revoked in 2019 and 2020.

Summary of Results:
The Trump administration initiated several rounds of import tariffs in 2018, sparking a trade war that persisted into 2023. As a result, countries such as Canada and Mexico imposed retaliatory tariffs on U.S. goods. This study assesses the dynamic trade effects of the trade war tariffs, focusing on the impact of tariff enforcement and revocation among CUSMA countries. Our event study estimates indicate an immediate and substantial decline in trade for targeted varieties. In contrast, the trade recovery was more gradual and incomplete after tariff revocation. The average trade destruction effect was -37 percent during tariff enforcement, while we find limited evidence of significant trade diversion. Although the trade destruction caused by tariff enforcement was immediate, trade recovery was slower and took three to six months after tariff revocation. The average trade recovery effect for the post-tariff period was 31 percent. These results suggest that the trade war tariffs caused only limited long-term trade destruction. Additionally, we observe notable heterogeneity in the trade war effects across different good classifications and according to the tariff level. Our estimates indicate that e 2018 trade war led to trade destruction for targeted varieties among CUSMA countries of USD 17.7 billion in the first 18 months after tariff enforcement.

Specific Objectives of the Project:
In 2018 the U.S. government started a trade war with China and other trading partners. In response to import tariffs imposed by the U.S., China and other countries responded with retaliatory import tariffs, explicitly targeting U.S. agricultural exports. This study investigated the consequences of retaliatory tariffs on the agricultural and food industry in California. We had two specific objectives. First, we measured the ‘net’ impact of the retaliatory import tariffs on California’s agricultural and food exports. Second, we measured the extent to which U.S. federal trade-war subsidies offset producer losses arising from the retaliatory tariffs.

Summary of Results:The U.S. substantially increased a number of import tariffs in 2018, precipitating a trade war that was very costly to U.S. agriculture, given its dependence on international trade. The losses arose because a number of trading partners retaliated with import tariffs targeted at U.S. agricultural exports. The U.S. government then created a Market Facilitation Program (MFP) to compensate U.S. farmers for trade war losses. We have found that except for cotton and rice, California farmers were not made whole by the MFP payments. California’s producers of tree nuts, dairy, and processed fruits and vegetables were the biggest losers. Our research concludes that the U.S. government under-estimated the overall economic losses incurred by California’s agricultural and food producers due to the 2018 trade war. While the MFP program overcompensated some farmers, others faced substantial tradewar losses that outweighed MFP payments. Particularly export-oriented food processors were heavily affected by retaliatory tariffs but received no compensation from the U.S. government. The unequal treatment of agricultural and food producers impacted by the 2018 trade war is a pattern also observed in other states. However, these inequalities are more pronounced in California than in any other state. California’s producers focus on high value-added products and have a significant stake in reducing trade barriers everywhere and in particular in China. We believe the MFP payments may have jeopardized international trade arrangements because the excessive payments violated U.S. farm subsidy commitments to the World Trade Organization (WTO), and this could be challenged at the WTO. This means the effects of the trade war may drag on.