Economist: Trump tariffs could lead Mexico to Brazil, Argentina

BONITA SPRINGS, Fla. — President Trump’s threats to impose 25 percent tariffs on products from Mexico could lead Mexico to build ports to bring in farm products from Brazil and Argentina, Michael Swanson, the chief agricultural economist for the Wells Fargo bank, said here Thursday. 

In response to a question from the audience at the Crop Insurance and Reinsurance Bureau annual meeting here, Swanson said that Mexico hasn’t imported a lot of farm products from South America because it doesn’t have the port infrastructure to receive Brazilian and Argentine imports and transport them to the center of the country where most Mexicans live.

But the U.S. tariffs could “push them to build ports, which would put pressure on the United States,” Swanson said. Although American farmers have been complaining about low commodity prices and higher costs, Swanson said “net farm income is trending up, but the dirty little secret is that there are fewer farmers and ranchers. Money is being split among fewer people.”

The Agriculture Department’s Economic Research Service on Thursday forecast higher farm incomes in 2025, but attributed the increase to the $10 billion farm aid package Congress passed in late December. 

Swanson did not mention the aid package in his speech, but in an interview afterward described that package as “the icing on the cake.” To earn $10 billion, farmers would have to invest $8.5 billion, Swanson said, while they got the $10 billion from “talk.” The increasing size of farms is a complicated issue, Swanson said. Bigger farmers are not necessarily better farmers, but better farmers tend to get bigger, he explained.

He said the government money that goes to big farmers will allow them to buy more land at high prices or pay high rent, making it hard for smaller farmers to access land. In his speech, Swanson did say that “livestock is holding up net farm income” at the present time. 

Swanson told the crowd of crop insurers and the reinsurers who travel from around the world for the meeting that farm income has trended up for 20 years but that they need to be aware that “there are cycles.”

He said he sees no signs of recession in the United States, and added, “don’t let your credit people let you pull back the reins every time an economist predicts a recession.”

Swanson also pointed out that the views of traders are limited because they are acting on what they know today, and tomorrow they will know something else. Electric vehicles will kill the demand for ethanol, perhaps by 2045, he said, but not in 2025 or 2026. The action in renewables, he said, is in renewable biodiesel. Don’t listen to people who talk about “the farmer,” Swanson said. “Politicians talk about doing things for ‘the farmer.’ Have you ever met ‘the farmer’?”

Instead, Swanson said, the crop insurers should consider each farmer an individual,  and instead of selling crop insurance should engage in “account management,” advising the farmer on what is needed for the operation.Crop insurance costs only 3 to 4 percent of the yield for corn while it protects 80 percent of the crop. “It is absolutely the best input you have in farming,” Swanson said, but he acknowledged that some farmers refuse to buy, particularly if incomes are down. Swanson said he wants to do business with the farmer who is buying more ground and equipment rather than the smaller farmer who may be “on the way out of farming.” He added that farmers who have inherited land “can hold on for a while.” When land values go up, farmers are happy, he said, because 83 percent of the balance sheet of farmers is land. Many people think that income and wealth are tied together, “but in farming they are not.” 

–The Hagstrom Report