How Tariffs Are Affecting Wisconsin Dairy & Cheese

Jun 4, 2019

Wisconsin farmers are already juggling increasing tariffs on goods to and from China. In the meantime, last week, President Trump announced that he'll steadily increase tariffs on all Mexican goods imported to the U.S. because of, what he perceives as, Mexico’s failure to stem illegal immigration.

Although officials are in talks on the matter, uncertainty remains. In order to find out how the economic headwinds are affecting Wisconsin agricultural industries, WUWM's Maayan Silver traveled to Sheboygan Falls. She met farmer Dean Strauss at his Majestic Crossing Dairy farm. He keeps some of his 2,000 dairy cows at this beige one-story barn, not too far from the main road.

Strauss is concerned about the impact of tariffs on the milk this herd produces. He says farmers try to strike a delicate balance between how much they produce and how much will be bought in the U.S. and abroad. "We need to have consumption or exports or however it needs to grow to keep a stable market," Strauss says. "If that doesn’t ebb and flow and you lose a little bit in trade, all of a sudden that’s a big deal."

And that’s where the recent tariffs come in. A tariff is a tax — paying extra for American goods sold in another country or paying extra for items imported to the U.S. About three weeks ago, the U.S. imposed 25% tariffs on $200 billion dollars of Chinese imports, in addition to the $50 billion that were already in place last summer. This past Saturday, China retaliated with tariffs of its own. As a result, Wisconsin's agricultural department says 10-20 of the state's food and agriculture items are expected to have an additional 15% tariff.

China has already put a 25% additional tariff on Wisconsin cheese. And farmers fear that could go up.

All of farmer Dean Strauss’ milk gets made into cheese at Sartori — a cheese company seven miles down the road.

Jeff Schwager, president of Sartori Cheese in the cheesemaking plant.
Credit Maayan Silver

In the Sartori plant, metal claws whirr through vats of cheese curds. "We export to 45 countries. China is our 5th largest [export] market," says Jeff Schwager, president of Sartori Cheese. China is actually a larger market for Wisconsin whey. Whey is a byproduct of cheese.

But back to cheese, Mexico is the company's number two export market.

Last year, Mexico was the largest importer of Wisconsin cheese.

President Trump announced last week that the U.S. will impose a 5% tariff on all goods imported from Mexico this coming Monday, June 10. The tariff would gradually increase to 25% if Mexico doesn’t help curb illegal immigration into the U.S.

Trump's move could result in retaliatory tariffs from Mexico. Schwager says he's had a strategy on tariffs ever since last summer, when the trade wars first started with China and Mexico. He absorbs or splits with his importer the cost of the tariffs for his Chinese and Mexican customers. He says it’s not a long-term solution, but it’s better than losing customers now and trying to win them back when prices are lower.

But with this latest round of retaliations, things could change. "We are very concerned that there are rumblings within China that there’s going to be a ban on U.S. dairy, or even higher tariffs," says Schwager. "And they’re concerned that for them to work with us, there might be a disruption if there’s a ban, or even higher tariffs that we would not continue to absorb. So, they’re looking for other sources, mainly European, rather than U.S. dairy.”

Schwager says if the tariffs go up too much in China, Sartori will pull out of the market — and he calls the latest escalations with Mexico "troubling."

UW-Madison economics professor Ian Coxhead say farmers and producers will be feeling a double whammy from these trade tensions. First, you have China taxing American products, and potentially Mexico doing the same — possibly reducing demand for American goods. Second, farmers will also be paying more for necessities like machinery and electronics, he says.

"That’s going to come through higher U.S. tariffs on a whole range of equipment that is produced in value chains that span the world, including China," Coxhead says. And value chains that include Mexico, if Trump’s tariffs go into effect.

Editor's note: Since this story initially aired, we've updated the language regarding when the U.S. began the additional tariffs on Chinese products. We also updated the tariff rate on cheese for the purposes of clarification.