I recently attended my first Forbes AgTech Summit. It featured one day of field shows (Beck’s Hybrids, Corteva, Elanco) and one day of panel discussions by ag industry leaders. At the start of the second day, Steve Forbes provided an overview of the issues facing agriculture today. One thing he said was very timely:
There may be trade imbalances in the world, but tariffs are not the way to fight them. A “tariff” is another word for “sales tax,” which is a tax paid by your own people.
(Steve Forbes please forgive my paraphrase of your quote).
I’ve heard this said many times before--retaliatory tariffs seem to only bring more pain to both sides, rather fix the trade issue. But because Steve Forbes was raising this issue at an agtech summit, I also began to wonder how the tariffs are affecting the agtech industry. So I asked a few of the entrepreneurs in attendance what they thought.
One entrepreneur told me that the steel and aluminum tariffs were making it difficult, if not impossible, to commercialize his agtech invention. His product requires a certain high-grade aluminum that is not manufactured in the US. The aluminum can be imported, but that would require his company to pay a 25% tariff. That, in turn, drives up the cost of his product significantly. This is particularly challenging for new products because the manufacturing efficiencies that come with upscaling are still far off in the distance. The tariffs make the initial cost for the early adopters much higher, and that makes the pool of early adopters much smaller.
Another entrepreneur is deciding where to source components for his agtech device and where to set up a manufacturing location. Why not just go 100% made in America? That oversimplifies the complexity of building a high-tech product.
Tariffs create uncertainty. On any given day, the trade situation with any country could change by the stroke of tweet. Not all components for this entrepreneur’s product are manufactured in the US. Should he sign a contract with a German company today, only to find the components covered by tariffs imposed on German products tomorrow? Should he source from a country that is not subject to tariffs today, only to find that tariffs against another country (that sells a less expensive component) are lifted tomorrow due to a new trade deal? Trying to make these sort of long-term manufacturing decisions is very hard with a quickly shifting trade landscape.
Many agtech entrepreneurs have ambitions to sell their products across the globe—not just in the US. Unfortunately, trade uncertainty here makes the US a less attractive location to manufacturer exportable products. That is the opposite of what we want.