A new study from the Agricultural Risk Policy Center (ARPC) at North Dakota State University examines a hypothetical scenario in which countries engage in tit-for-tat retaliation against U.S. “Liberation Day” tariffs, which were proposed but never fully implemented, and finds that such responses may lead to substantial welfare losses. These effects are particularly pronounced for Canada and Mexico, reflecting the deep integration of North American supply chains.

The paper, “Trading Blows, Losing Bushels: Global Implications of U.S. Tariff Hikes for Agri-Food Trade and Welfare,” authored by Drs. Carlos Zurita, Dongin Kim, and Sandro Steinbach, evaluates a scenario in which the proposed April 2 “Liberation Day” tariffs and their subsequent July 31 revision are implemented. It also considers a more severe, hypothetical scenario in which all countries respond with tit-for-tat retaliation against the United States. The analysis employs a sectoral general-equilibrium gravity model covering 46 agri-food industries, calibrated to a 2023 baseline. The framework combines product-level trade elasticities with sector-specific supply elasticities derived from input-cost shares, allowing for a transparent mapping from tariffs to equilibrium outcomes.

The simulations reveal large and uneven consequences of the 2025 U.S. tariff hikes for agri-food markets. Under unilateral implementation of the Liberation Day and July 31 tariff schedules, US agri-food exports decline by 22%–25%, the price index rises by roughly 7%, output falls by about 3%, and national welfare declines by up to 4.9%. Canada and Mexico experience substantial spillover losses even without retaliation: Canada's price index increases by up to 4.6%, with welfare losses of 2.7%, while Mexico's price index rises by up to 10.6%, with welfare losses of 3%.

When trading partners respond symmetrically, US export losses deepen to 37%–43%, output contracts 4%–5%, and welfare declines reach nearly 8%. Retaliation also amplifies the costs for Canada and Mexico, whose welfare losses approach 5.5%–5.6%, reflecting the vulnerability of highly integrated North American supply chains. Overall, the findings suggest that retaliation amplifies global welfare losses rather than offsetting them, indicating that greater policy restraint and cooperation could reduce economic costs for both the United States and its major trading partners.

“Tariff retaliation may not be the best response to U.S. tariff increases in the agri-food sector,” said Dr. Zurita, Senior Research Economist at ARPC. “In the presence of deeply integrated supply chains, tariff hikes and retaliatory measures can reinforce each other, amplifying economic losses and leading to unintended declines in welfare.”

The full study is published in the Journal of Agricultural Economics and is available at:
https://doi.org/10.1111/1477-9552.70048

Media Contact:
Dr. Carlos Zurita — carlos.zurita@ndsu.edu
Agricultural Risk Policy Center (ARPC)
North Dakota State University
www.ndsu.edu/agriculture/arpc