Tariffs Aren't Going Away -- Economist and Grain Market Analyst Dan Basse Weighs In

By Arvin Donley, World Grain/Sosland Publishing Editor

Reprinted with permission from World Grain. (February 18, 2025)

When US President Donald Trump on Feb. 3 announced he was placing a 30-day pause on the 25% tariffs he imposed on Canadian and Mexican imports two days earlier, North American grain producers and traders likely breathed a collective sigh of relief.

Trump’s decision to pause the tariffs came after the Canadian and Mexican governments vowed to increase border security to stem illegal immigration into the United States as well as prevent shipments of the deadly opioid fentanyl from reaching US soil.

Crisis averted? Veteran economist and grain market analyst Dan Basse said probably not.

“I think the tariffs against Mexico and Canada are coming back in 30 or 45 days,” Basse, president of Chicago-Illinois, US-based AgResource Inc., told World Grain. “I don’t think they’re going away. I don’t think fentanyl and the border are enough to take them away.”

The initial response from Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum was to retaliate with 25% tariffs on US imports before they decided to make concessions on border security. If after the 30-day pause Trump reimposes the tariffs, it will have massive repercussions for US farmers, Basse said.

That’s because Mexico and Canada are the top two US agricultural export markets at $29.9 billion and $29.2 billion, respectively, according to the US Department of Agriculture (USDA). More than 40% the United States’ total corn exports (24.5 million tonnes) were shipped to Mexico in 2023-24, according to the USDA, while Canada imported 1.7 million tonnes of US corn that year. Mexico is also the largest importer of US wheat and third largest importer of soybeans.

The loss of market share in China for US grains and oilseeds in recent years and the additional 10% tariff announced by Trump on Feb. 1 on already heavily taxed Chinese products (China instantly retaliated with 15% and 10% tariffs on various US products) make for an even more uncertain future for US ag producers.

“All of this is difficult and problematic for US agriculture,” said Basse, a strong proponent of free trade.

The United States holds leverage over Canada and Mexico, as it imports significantly more from those countries than they do from the United States. The situation with China is different, Basse said.

In 2018, during his first term as president, Trump initiated a trade war with China by imposing massive tariffs on Chinese goods. China responded in kind, which devastated US soybean and corn producers who since that time have lost a significant amount of the Chinese market to Brazil and other countries.

“China is well prepared,” Basse said. “China has had years to diversify suppliers, which they have done very nicely. They just got done buying Argentinean beans (last week). I do think the Chinese are fearful that Trump means what he says and that the tariffs could ultimately get to 50% or 60%.”

There also have been rumblings amongst influential members of the US Congress about revoking China’s Permanent Normal Trade Relations with the United States that has been in place for 25 years.

In addition to the tariff tensions, the United States and China are vying for control over the Panama Canal, the waterway that connects the Caribbean Sea with the Pacific Ocean. The canal, which was formerly owned by the United States until then-President Jimmy Carter sold it to the Panamanian government in the late 1970s, is a key channel for US grain exports.

After a recent visit by US Secretary of State Marco Rubio, Panama declined to renew a key infrastructure agreement with China following Trump’s recent threat to “take back” the canal. The agreement was part of China’s Belt and Road Initiative designed to bind China closer to countries in the region and beyond by building roads, railways, airports, power plants and other infrastructure.

“I think Trump is aware the Chinese are trying to build a rail line to export grain and ag products off of Chile,” Basse said. “With that in mind, he did not also want them to have control of the Panama Canal. I don’t think any of us expect the US to re-own the canal, but the question is who will have control of it? I think the Trump administration is wise to make sure that if things go down badly with the Chinese, they don’t end up in a spot where they can’t get naval and military vessels into the Pacific very quickly.”

However the brewing trade war between the United States and other countries plays out, Basse said the US ag industry will continue to face major export challenges.

“When I first got in the business in 1979, 62% of the grain and ag trade came from the US,” Basse said. “Today, it’s only about 12%. We have been losing dominance in the agricultural and grain trade very quickly. We no longer have the hammer like we once did in world trade. China can buy all the soybeans from Brazil that it wants to; it doesn’t need US soybeans.

“China is also looking to be more self-reliant through genetically modified seeds. That’s why they bought Syngenta and are planning to plant more GM crops to see if they can get a yield bump and increase their domestic supply and reduce their footprint as a world grain buyer.”

As for the grain futures market outlook, Basse sees a bearish scenario likely unfolding in the coming months if Brazil gets its winter corn crop planted without issue, corn acreage in the United States tops 93 million acres as predicted, and if the forecast for a record-large South American soybean crop is realized.

“If the Russians don’t have a winter wheat problem, then I think grain prices across the board are going to slide,” Basse said. “I don’t see a demand kicker that will send prices higher.”

Aside from another demand driver being developed for grains, perhaps something biofuels related, Basse anticipates grain prices to remain stagnant for the foreseeable future.

“The only way this could all change is if the US were to get China back as a Phase One buyer,” Basse said. “I won’t say that’s impossible, because with this Trump guy you never know. You can’t rule him out. The last Phase One deal was worth $200 billion, including $30 billion to $40 billion in US agricultural goods. But that’s a big pill to swallow for the Chinese when their economy is deflating and they’re having consumer problems of their own.”