Impacts of U.S. countervailing duties on phosphate fertilizers

Abstract

Countervailing duties are a trade policy instrument by which importing governments tax imports that are found to benefit from foreign subsidies. Thus, in effect, these duties attempt to remedy market distortions generated by foreign subsidies by further distorting market mechanisms. On March 11, 2021, the U.S. International Trade Commission issued duties ranging between 19.97% and 47.05% on Moroccan phosphate imports upon finding that Moroccan exports had been receiving unfair government subsidies. In this research, we estimate the impacts of these duties on U.S. diammonium phosphate and triple superphosphate fertilizers, as well as long-run downstream prices of five U.S. row crops with the largest phosphate usage. Using these results, we assess the implications for gross receipts in the U.S. fertilizer industry and gross margins for American farmers. We also calculate the implied change in expenditure for agricultural end users. We find that the countervailing duties have increased U.S. phosphate fertilizer prices by approximately 34% over counterfactual levels. This corresponds to an expected downstream price response ranging from around 10% for corn, cotton, and sorghum to between 1% and 4% for soybeans and wheat. This market distortion generates a $23 billion increase in gross receipts for a concentrated domestic fertilizer industry while shrinking gross margins for American farmers by 2% and 8% and increasing agricultural user expenditures by approximately $10.84 billion.