Fixing the U.S. Agricultural Trade Deficit Is a Fool’s Errand

A farmer inspects a soybean field in Maryland. U.S. soybean export sales were down 39% last month from a year prior. (Roberto Schmidt / AFP / Getty Images)

About the author: Cullen S. Hendrix is a senior fellow at the Peterson Institute for International Economics. He has consulted for the World Food Programme, USAID, the World Bank, and the U.S. government on food security, commodity markets, and global trade.

The Trump administration announced a $12 billion bailout package for U.S. farmers this month, intended to aid agriculture producers who have taken a hit from the U.S.-China trade war. China’s dramatic pullback in its purchasing of U.S. soybeans and other food products has contributed to the $50 billion agricultural trade deficit forecast for this year, the largest in modern U.S. history. For an administration obsessed with trade deficits, this isn’t good news. For farmers, it is far worse.

But it isn’t a bolt out of the blue. The U.S. has been in a growing agricultural trade deficit since 2021. Reversing that trend would run up against global economic forces far larger than any single policy dispute. Chasing balanced agricultural trade is like chasing a white rabbit, one that will ultimately prove elusive.

The agricultural trade deficit partly reflects Americans’ immense purchasing power and their preference for year-round dietary variety. They increasingly want higher-value foods that the U.S. cannot produce efficiently or at scale, such as winter tomatoes, specialty nuts, abundant beef and seafood, and climate-constrained products like chocolate and coffee. As incomes rise, demand for such products grows. Meanwhile, demand for basic staples has largely plateaued because higher incomes increase demand for quality and variety, not for vastly larger quantities of food. This is one of the reasons U.S. corn farmers were so gung-ho on ethanol when it was introduced in the 2000s: It was a new use case for their product in a saturated commodity market.

U.S. agricultural exports of bulk commodities, such as corn, wheat, and soybeans, are also facing stiffer competition. The green revolution in Brazil—and, to a lesser extent, in Argentina—has dramatically expanded global exportable supplies of soy, corn, and beef. Greater global supply has translated into better-stocked markets and lower prices for traditional U.S. bulk exports. The same dynamic is playing out with wheat from Eurasian export powerhouses like Kazakhstan, Russia, and Ukraine.

In many ways, this global transformation is the food sector’s version of the U.S. shale revolution: a technology- and policy-driven shock that the rest of the world will have to reckon with.

But there are also self-inflicted wounds: tariffs. China has shifted purchases away from the U.S. and toward alternative suppliers as a result of Trump’s trade war. This is a regrettable but predictable outcome of weaponizing trade policy. Once exports become a geopolitical tool, trade partners diversify their sourcing both as insurance—food security is existential—and as a way to push back against unilateral rule changes.

Unfortunately, U.S. agriculture is wide open to retaliation because alternative supply sources are readily available elsewhere.

Finally, there is the strength of the U.S. dollar. The dollar began appreciating sharply in 2014, just as the agricultural export boom of the late 2000s and early 2010s, which was driven by historically high global food prices and a relatively weak dollar, was fading. When the dollar appreciates, U.S. goods become more expensive for foreign buyers, reducing export competitiveness. At the same time, imported products become cheaper for American consumers. These are textbook conditions for a widening trade deficit.

These four factors—shifting U.S. consumer preferences, increased competition from other suppliers, a trade war, and the strong dollar—are all operating in concert, to dramatic effect. Some more minor factors are also at play: rising U.S. production costs largely due to heightened immigration enforcement and curtailed labor supply, higher export logistics costs, and more climate-related yield variability. One-time cash infusions and trade deal-related arm-twisting on U.S. agricultural purchases won’t fundamentally alter any of this.

Running consistently large trade surpluses in a diversified economy, such as in the U.S. or China, usually only happens through active domestic demand suppression. That can take the form of keeping the currency artificially weak or through financial repression—a kind of stealth tax on households that funnels cheap capital to export-oriented industries and suppresses domestic consumption. China is a master practitioner of both.

China’s current gross domestic product per capita is about $27,000, which is roughly where the U.S. was in the late 1970s. At that income level, U.S. household consumption accounted for 62-65% of GDP. In China today, it is only 37-38%. That is a consumption gap of about 25 percentage points of GDP—a massive deviation from what you would expect at this stage of development. When households consume that little relative to what the economy produces, the extra output has to go somewhere. It shows up as persistent external surpluses.

It is hard to imagine U.S. consumers actually wanting balanced trade; it would only come about through significant reductions in already tightening consumer spending or a softening of foreign demand for U.S. assets. Neither would be good for the economy. It is also worth recalling that the peak years for U.S. agricultural exports in the 21st century coincided with periods of heightened global food insecurity—conditions that are neither normal nor desirable benchmarks for policy.

Policymakers should level with the public about these trade-offs, rather than promising outcomes that the underlying economics and politics simply can’t deliver.

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