Free Trade Agreements and the U.S. Agricultural Trade Deficit: Analyzing Past Impacts and Simulating Future Opportunities.

By Mawuena Tome

After decades of agricultural trade surpluses, the United States is currently experiencing record levels of agricultural trade deficits. In 2023, the deficit reached $20 billion, rising sharply to $37 billion in 2024, a concerning trend that poses significant risks for American farmers and policymakers alike (See Figure 1). Amid global shifts in trade dynamics, increased demand for high-value imports, and mounting trade barriers, the question looms large: Can free trade agreements (FTAs) help mitigate the growing agricultural trade deficit in the U.S.?

Figure 1: U.S. Agricultural Trade Balance Since 2000

This study sheds light on this question using a structural gravity model applied to bilateral trade data from 1986 to 2023. The study examines the impact of existing FTAs, WTO membership, and the potential of new FTAs, offering insights for U.S. agricultural trade policy. 

Why FTAs Matter for U.S. Agriculture:

FTAs are designed to reduce tariffs and non-tariff barriers, expanding market access and strengthening trade relations. While some have questioned their impact on the U.S. agricultural trade balance, our gravity general equilibrium simulations provide an answer through four policy scenarios using the NDSU CAPTS International Trade and Production Database for Simulation (ITPD-S), covering 251 countries and 26 agricultural sectors. This approach allowed us to simulate both the historical effects of existing agreements and future opportunities under hypothetical scenarios.

Scenario 1: U.S. Withdraws from All Existing FTAs

We simulated the effect of a complete withdrawal from all fourteen active U.S. FTAs covering 20 countries. In the short run, both U.S. agricultural exports and imports with FTA partners reduced marginally. This observation led to a substantial reduction in the U.S. agricultural deficit as exports declined and imports remained relatively stable. (See Figure 2)

Figure 2: Estimated GE Effects of U.S. Withdrawal from All FTAs Together

In the long run, both U.S. agricultural exports and imports with FTA partners have reduced significantly. Contrary to the reductions in the trade deficit observed in the short run, there is a significant increase in U.S. agricultural trade deficits to levels similar to those observed in the baseline. This demonstrates that U.S. withdrawal from current FTAs may offer a short-lived reprieve in deficit numbers, but it weakens agricultural competitiveness and deepens deficits over time.

Scenario 2: U.S. Withdraws from the WTO

The WTO governs a significant portion of global trade. We simulated a hypothetical U.S. withdrawal to assess the fallout. This withdrawal typically implies that the U.S. will face even higher trade barriers, which will significantly reduce agricultural exports and worsen the trade deficit. From our simulation, withdrawal from the WTO would result in a decline of U.S. agricultural exports by $31 billion in the short run and by $25.7 billion in the long run (See Figure 3).

Figure 3: Estimated GE Effects of U.S. Withdrawal From WTO

This result, therefore, indicates that the U.S.’s WTO membership is vital for maintaining global market access. Withdrawal would significantly hurt the U.S. agriculture by limiting export opportunities.

Scenario 3: U.S. Signs Bilateral FTAs with New Countries

We explored potential FTAs with new bilateral partners based on the most recent data available in our dataset (2023). Top Partners with Potential for agricultural trade balance growth: countries such as China, Japan, Taiwan, and Turkey emerged as key prospects for boosting U.S. agricultural exports and improving the trade balance. (See Figures 4 & 5)

Figure 4: U.S. Bilateral FTA Partners with the Highest Agricultural Trade (Baseline & Short Run)

Figure 5: U.S. Bilateral FTA Partners with the Highest Agricultural Trade (Baseline & Long Run)

Insights from scenario 3 demonstrate that strategic bilateral agreements with high-potential partners could effectively reduce trade deficits and enhance export competitiveness.

Scenario 4: What If the U.S. Signs FTAs with Major Economic Blocs?

We assessed the impact of FTAs between the U.S. and 16 major economic blocs (like ASEAN+3, CAN, and MERCOSUR). While FTAs with certain blocs significantly improve the agricultural trade balance, others could worsen the deficits depending on the economic bloc’s structure and trade flows with the U.S. Figure 6 illustrates the distribution of changes in the U.S. agricultural trade balance after implementing bilateral FTAs with each economic bloc.

Figure 6: U.S. Trade Balance After Bilateral FTAs With Each of the 16 Economic Blocs

Seven (7) of the bloc-level FTAs offer significant potential to enhance U.S. agricultural exports and improve the trade balance in varying degrees, as colored in green. Other bloc-level FTAs exacerbated the U.S. deficit situation to varying degrees, as indicated by the gold color. While bloc-level bilateral FTAs have the potential to improve the trade balance, some of these agreements exacerbate the trade deficit situation. Bloc-level FTAs therefore present a strategic opportunity; however, careful partner selection is essential to avoid a further increase in the U.S. agricultural trade deficit.

What This Means for Policymakers and the Agricultural Sector

Our findings suggest that maintaining some of the existing FTAs (current FTAS with agricultural trade surpluses) and WTO membership is crucial for the competitiveness of the U.S. agricultural sector. Proactively negotiating new FTAs, especially with high-potential countries and economic blocs, can help reverse the current agricultural trade deficits.

For Policymakers, this analysis highlights the importance of maintaining and expanding bilateral and bloc-level trade agreements to enhance U.S. agricultural exports, recognizing the broader economic risks of trade agreement withdrawal, such as withdrawal from the WTO, and targeting high-value partnerships for future trade deals.

As U.S. agricultural trade dynamics evolve, trade agreements will continue to play a critical role in shaping outcomes for farmers, exporters, and the broader economy. This study reinforces the notion that carefully negotiated FTAs can mitigate agricultural trade deficits and enhance U.S. economic welfare, particularly when targeting individual FTA partners and economic blocs with huge potential for U.S. agricultural exports.

Author and Contact Information:

Sandro Steinbach – sandro.steinbach@ndsu.edu

Mawuena Tome – mawuena.tome@ndsu.edu

Carlos Zurita – carlos.zurita@ndsu.edu