It’s Not Just the Tariffs: Agriculture and the Cost of Trade Policy Uncertainty
Zach Helder, Senior Manager, Petersen & Company | April 30, 2025
On April 2nd, President Trump announced the most sweeping American tariff regime in at least a century—introducing not just new trade barriers, but a level of economic uncertainty that may prove even more damaging. For agricultural producers, businesses, and associations, the past month has not been about reacting to specific tariffs so much as navigating a suddenly unstable global trade environment. Agribusinesses should resist the temptation to find patterns or explanations in trade policy to inform their planning—the President and his administration continue to have their own internal debates about their rationale and end goals for U.S. trade. All that’s clear now is that anything is possible, and policy change can happen in the blink of an eye. While policy remains in disequilibrium, vigilance and clarity are paramount. Agriculture must prepare for prolonged uncertainty.
Estimating the effects of the new trade barriers—especially the “liberation day” announcements and the Section 301 action on Chinese maritime dominance—is no easy task. There is little precedent for such sweeping restrictions imposed on such a deeply integrated global system. Moreover, as we’ve said, the policy remains unsettled—the scope and intensity of the barriers have shifted by the week, sometimes even the day.
What is consistent is uncertainty itself. And that may be the most important point—yet the least emphasized in current debates. Trade economics is unequivocal on this matter: uncertainty is not just a descriptor of our political climate, but an economic force in its own right, capable of harming the global economy as much or more than the tariffs themselves.
The history of U.S. trade policy is instructive on this point: the central purpose of the decades-long U.S. push for trade agreements was to reduce uncertainty. The project of trade liberalization and order-building, via the GATT and later the WTO, was never just about lowering tariffs—it was about creating a stable, predictable system. Tariffs, while costly, can be priced into business decisions if they are stable. But unpredictable tariffs make trade planning and investment untenable. Reducing tariff levels generates economic value; credibly locking in their upper bounds may generate even more.
As Goldberg and Pavcnik (2016) note, “An agreement that leads to small changes in the levels of trade restrictions but large declines in uncertainty about trade policy could in principle have large effects on trade flows and other outcomes.” The inverse also holds: even small changes in trade restrictions, when paired with major increases in uncertainty, can have large and harmful effects. Today’s trade regime offers both—the specter of large restrictions.
The more erratic trade policy becomes, the more likely cross-border commerce is to seize up. That includes not only trade in goods but financial investment as well. This is especially dangerous in an economy that operates more like an airplane than a car—stopping mid-flight leads not to idling but to stalling. And the cargo on board is significant: trade accounts for 25% of U.S. GDP and 60% of global GDP.
We don’t have to speculate about today’s unprecedented trade policy uncertainty (TPU). A well-established TPU index maintained by economists tracks uncertainty levels dating back to 1960 and correlates strongly with real-world economic decisions. From 1960 through President Trump’s first election, the index never exceeded 100, then peaking at 250 during the initial U.S.-China trade war. On April 10, 2025, it stood at 1,933 and averaged 1150 for the month of April. (Caldara et al., 2025).
Uncertainty of this magnitude also masks the looming risk of retaliatory tariffs from U.S. trading partners. Like businesses, governments are also influenced by uncertainty—watching and waiting to see if trade agreements will be reached and honored. But if negotiations fail, the imposition of large and unpredictable retaliatory tariffs could amplify the harm of both realized trade policy costs and uncertainty effects. Today, uncertainty is holding governments back from retaliation, but if tomorrow they conclude that an agreement is implausible, they may dispense with restraint. Beyond the immediately realized effects of retaliatory tariffs, retaliatory action would raise new questions: what is the duration and objective of this additional nation’s trade policy? Are other nations also losing their resolve to settle trade disputes via negotiation? Will other nations soon retaliate?
This illusory blunting of retaliation illustrates the particular dangers of trade uncertainty. It damages the economy like a blood clot in the body: symptoms may be minor at first, but if left untreated, the consequences can be sudden and catastrophic. The early signs are already here: from the slowing of investment across the economy to a practical freeze in forward bookings for ocean freight. Rationally, producers and businesses don’t like to make irreversible decisions under uncertain conditions. Should we see declining planted acreage, tighter credit, or a surge in implied commodity price volatility, it would signal that this economy-wide withholding is growing in scale and severity, indicating a long and broad slowdown in the agricultural economy.
There is little that an individual firm or producer can do to respond to uncertainty. Instead, the agricultural sector must hope for political relief—either through successful trade negotiations or a reversal of the administration’s course. Until that relief arrives, the worst thing agribusinesses can do is attempt to outsmart uncertainty, finding assurance in a model theory of trade policy that makes signals out of noise. Acting on imagined predictability will, in the end, produce only cold comfort. Instead, they should monitor indicators closely, manage exposure carefully, and buckle in for turbulence. The most harmful effects of uncertainty may not yet be visible—but they are undoubtedly on the way.